I do not understand this either. There are three scenarios that make sense to me:
1) Friendly fire on always for everything. Party, town, clan, doesnt matter, you can hurt and heal everyone targeted / within an aoe. Probably the most "skill based" system but would require a major re-work of many hero skills and therefore im assuming not feasible.
2) Friendly fire off for party, on for town / clan. If the devs are trying to promote 5v5 as the desired match up size, this would sort of make sense but also be a little goofy to acclimate to situationally. But it would certainly give organized 5 man parties a real chance against cluster / zerg groups who would probably just end up killing themselves lol.
3) Friendly fire off for party, town and clan. If the intent is to just nerf aoe support, then a five man group size limit with pvp flags off for town, clan and party makes sense. You can go and fight with your clan of 10+ people if thats your thing, but you need to think a little about how to organize groups to make the best of what support you have.