Merging a colour is used when you need to reduce the number of colours in the design and there are close colours which could be replaced with a single colour.
By dragging one colour onto another, the two colours are replaced by a single colour and the total colours in the design therfore reduces by one.
This can be usful in converting a photograph to a chart where the automatic conversion has not given satifactory results. Import the design using more colours than you require and then manually merge colours in areas of low importance.