For example, if I have "cats" and then add "kittens" to the same ad group, have I expanded my reach by allowing the ads to show up on pages that have "cats" or "kittens" or have I limited my reach by showing up only on pages that have the words "cats" AND "kittens"?
To determine whether to place your ad on a content page, the AdWords system considers the theme of all the ads and keywords in the ad group. For this reason, it's important that each of your ad groups is built around a consistent theme. Focus on only one of the products or services that you're advertising. This helps ensure that your ads appear on the most relevant content pages.
The rest of that page is useful reading, too.