With iOS 5, you can make albums within your Photo app. However, the pictures you put into the album(s) are only linked to the new album; they will still appear in the main album of the Photo app. They aren't moved. If you browse the new album, yes, only those pictures are in there. However, they still will appear in the main album.
To move them so they don't show in the main Photo album, as bab2010 said, you'll need to jail break the phone. I use a Cydia tweak called PhotoAlbums+ for iPhone/iPod ($4.99, USD). This does allow you to actually move the photos around within albums; the pictures are only in one album (no links).
Or, there's always iTunes - but you don't want that...
Marilyn