You can create Houses via Admin > Config > Core Setup > Houses
Click 'Add New' then enter a Code, Meaning and choose a colour before clicking Save.
The Code can only be up to three characters long, but you can put the full name in the meaning field.
Assign Students to a House
Go to Admin > Students > Group Updater, choose the year, form and in student attribute on the scroll down bar, choose House.
Using the drop down at the top, choose the House you want to add students to and select students from the list. When you're done, click Update Students.