Select the Parent Device Group (default is Shared) that will be just above the device group you are creating in the device group hierarchy.
https://www.paloaltonetworks.com/documentation/70/panorama/panorama_adminguide/manage- firewalls/add-a-device-group#_26700

The application filter is a dynamic item that is created by selecting filter options (Category, Subcategory, Technology) in the application browser. Any new applications coming to PAN-OS in a content update that match the same filters, the set will automatically be added to the Application Filter created. For example, when a 'peer-to-peer' is selected as a Technology Filter, that filter will automatically update if a new application gets added to that category in the latest content package.
https://live.paloaltonetworks.com/t5/Learning-Articles/How-to-Block-Traffic-Based-on-Application- Filters-with-an/ta-p/59965