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As I understand it, "merged" fonts were specially prepared Postscript fonts that allowed style buttons and keyboard shortcuts to change styles. Usually this is in Quark, but it might work in other applications as well. With current fonts, the style buttons make fake or styled versions of bold or italic. With a "merged" font, you could use Command+I and selected text would use the real italic, not just a tilted approximation. Most of what I know is from Robin William's book "How to Boss Your Fonts Around" from 1998.
Do any Typophiles still use this feature?