Under Group permissions you can add users and confluence will not complain

Under space Admin > Permissions

1) Click Edit Permissions
2) Under Groups add a user
3) Assign it permissions and click save all

You will not get any error, even though you have added a user under what should be group permissions.
This is confusing, as some users would believe they have added a users permissions when they have in fact added a group permission for a group that does not exist.