I don't understand either. I fully expected them to add a new circle for me called "Google Reader Friends" or something but they didn't. Even better would've been in that popup saying hey look, something new! to give the option of creating that very circle. Very big and obvious oversight.
Google has a lot of trouble connecting with end users, especially end users that aren't of the majority of their users (e.g. users who use more than just search and gmail). This is more confirmation.
