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Hey,
Grouping will take several objects and put them into one container. You can then scope into that container to access all of the bits that you selected when you made the group. This is useful when you want to treat a set of objects as one in order to move/animate/publish/hide/etc. them together.
Merging is purely for Paint objects, and it's mostly for optimisation. It takes the contents of several Paint objects and combines them into one single Paint object, which reduces the number of objects in your level. This option is useful to save on thermometer cost if you have lots and lots of Paint objects in your level.
Hope that helps :)
- Liam