Groups work one way. Basically, you are setting up the switch so that the physical button presses control your lights directly via zwave. You only need to set up the groups on the switch (not the bulbs)
The Lifeline group is typically used to communicate status changes back to your hub. Only the Hub needs to be in the Lifeline group, and it is automatically set when you include devices you no changes should be needed for that group.
It should look like this:
+---Hub
+---Switch
| +---Lifeline(Group 1)
| | +--Hub
| +---Basic_Set (Group 2)
| | +---RGB Bulb 1
| | +---RGB Bulb 2
| +---Switch_MultiLevel_Set (Group 3)
| | +---RGB Bulb 1
| | +---RGB Bulb 2
| +---Switch_MultiLevel_Start/Stop (Group 4)
| | +---RGB Bulb 1
| | +---RGB Bulb 2
+---RGB Bulb 1
| +---Lifeline(Group 1)
| | +--Hub
+---RGB Bulb 2
| +---Lifeline(Group 1)
| | +--Hub
Keep in mind that once you set up your associations, you do not want to control the switch itself in Home Assistant. The Groups/Associations are for the physical buttons on the switch. If you try to control the switch itself in HA, you will end up cutting power to the bulbs.
You will probably also want to set up a light group in HA in order to control both RGB bulbs at the same time:
light:
- platform: group
name: Kitchen Lights
entities:
- light.rgb_bulb1
- light.rgb_bulb1