If you have more than 200 Contacts, you need to do this in batches. You can only add 200 records at a time to Distribution Lists.
To do this, make use of 'Range Selection'.
Action > Range Selection
4. Input the range you'd like to select like so:
This is your first batch (1st 200 contact records).
5. Add these to your Distribution List
6. Once added, now you'll do the 2nd batch (#201 to #400):
7. Add these to your Distribution List
8. Repeat this range selection + add to DL action for the rest of your Contacts.