You can merge with two input files file (two way merge) or with three input files (three way merge). Press the merge tool bar button to open the Merge Editor. In the Merge Editor you see the current content of the merged file.
In case of a two way merge the merged file initially is the same as the left file. It has the same lines marked with a red background as the left file.
To select a difference from the left or right file as content for the merged file simply double click the difference in the source file. In the Merge Editor the content changes to the selected difference and the difference gets a blue background. The blue background indicates that you have resolved the conflict for this difference in the left and right file. The left or right line marker of the Difference Marker turns to blue as well, depending on which file (left or right) you choose.
You can also edit the merged file in the Merge Editor. Double clicking a difference block in the Merge Editor does scroll the source files to the same difference and does make it the current difference. With the mouse wheel you can scroll to the next or the previous difference.
In case of a three way merge you may have a green background for a difference. The green background says that the lines are Identical to the Original file. Take a look at difference 3 in the screen shot. The left and right file are different and the left file is identical to the original file.
If one difference in a file is identical to the original file submerge does automatically select the difference lines from the other file for the merged file.
Selecting Save from the File menu will save the merged file under the name of the left file.