There's not a "merging" functionality as far as I know, so merging really entails copying the pixels of one tile (8x8) onto another manually. As per the VLDC rules, everything but the transparency from the tile that goes above must be copied over the one that goes below.
You are also allowed to recolor
, that is, you can swap one color for another in each of the two individual tiles. YY-CHR has a functionality for that, in 0.99 it is accessible by CTRL+R or by a colorful button with two palette rows and an arrow pointing down between them.