Configurable Products

Some products are offered with variants, such as colors and sizes. If product variants do not require separate SKUs (Stocking-keeping units), you could use a simple product type, with an option to select a size. However, in most cases, each variant of a product requires a different SKU. Many also are priced differently. With configurable products, you can create each individual SKU as a simple product, but show them all as one product with many variants.

To find this, navigate to CATALOG > MANAGE PRODUCTS. Click ADD PRODUCT. Once here you'll see the screen below.

For more on Configurable products see HERE