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A mail merge is a method of taking data from a database and inserting it into documents such as letters, mailing labels, and name tags. It usually requires two files. One stores the data to be used, while the other contains information on how to format the data.
For example, if you wanted to print a set of mailing labels, you would construct a source document containing the addresses of the people you wish to print labels for and a main document that contains information on where to put each person's name, address, city, state, and zip code on the label. The main document would also contain information on how many labels are on a page, the size of each label, the size of the sheet of paper the labels are attached to, and what kind of printer you will use to print the labels. Running a mail merge with the two files results in a set of labels, one for each entry in the source document, with each label formatted according to the information in the main document.