I just did another sheet where my data souce is SQL rather than an Excel document. Is that maybe my problem? Although I don't see why that would make a difference.
I believe the option is disabled because you are trying to group dates--you can see the paper clip icon in your toolbar, but it is not applicable for the selection you've made. You cannot use the "Group" feature on members of a date dimension, as far as I know.
Maybe this will help you: http://community.tableau.com/thread/104232?start=0&tstart=0 or this: http://community.tableau.com/thread/124179?start=0&tstart=0
I believe you'll want to use calculations to group your dates. Hopefully someone with more experience can give you some more detailed instructions.
Matthew is essentially correct. You cannot group dates at higher levels in the hierarchy. At the lowest level (i.e. the exact date) you can. So, if you were to right click the date field and select "Exact Date" and then right click again and select "Discrete" to get headers, then you should be able to group the individual dates.
Matthew is also correct in saying that it would be better to do this as a calculation. The code for this would look something like:
IF MONTH([Test Column 4]) == 1 OR MONTH([Test Column 4]) == 3
THEN "January or March"
ELSE "All Other Months"
This is better for at least a couple of reasons:
1. If your original data didn't include every day, it might get missed in the grouping. The calculation is dynamic.
2. The calculation will allow you to group any level at or below the month instead of just individual dates.