Software Deployment

Merge module is used primary to create a package of files, which has somekind of common properties and you do not need any user's intervention to install it (like GUI). It's simple a package which should be installed on [TARGETDIR].
Next, merge moduling has a capability to include it into any other regular packages (It is some kind of 3rd party library of files, which is needed by a program).
Usually, you create merging modules of files which are not changed so often (like program's binaries do), for SDK package of programe when you want to sell as a 3rd party software, etc.
One example: you need to include into regular .msi package also Visual studio run time libraries as your program needs that. If you do not merge a module of those files, you need to know where to put all those files (specialy on mixed environment x64 and win32 you can make a mistake very easy) therefore you just merge a module of VS RTL and that's it. It's a merge module job to know where all those Runtime libraries needs to be installed.

Best regards
Andreo

The main functionlity of the merge module is sharing of application functionlity with various other applications.

In a normal case merge module will be created for a registerable files(.dll,.ocx,.tlb,.exe) to get aviod of Dll sharing issues.

Say for example if your creating 2 0r 3applications, which requires VB runtime engine should be installed for proper functionlity.
in that case you no need to add manully vb runtime files in both applications, instead of that you create a merge module and add the vb functionlity as merge module, basically it acts as a re-usable component.< which in turn saves time, aviod dll hell, it wont break other application functionlity

It is depends up on how frequent your going to use the files.. so u group it and make as merge module..

Even you can also create a merge module for a single .dll file also, you should follow cretain best practise in order to create it.