However, on layers with the NoMerge technology file keyword set, merging is always suppressed.
The state of this button tracks the logically inverted state of the boolean variable NoMergeObjects, which can (equivalently) be set with the !set command.
Existing objects can be similarly joined, or split into trapezoids, whith the buttons in the Join Boxes, Polygons panel brought up with the Join button in the Edit Menu.
Join (merging) operations are subject to the settings of several variables (e.g., JoinMaxPolyVerts), which have equivalent entries in the Join Boxes, Polygons panel. These limit the complexity of polygons created by merging, mostly for optimizing for speed for merging large object collections.
The Merge, Clip Boxes Only button in the Edit Menu modifies the merging behavior to clip and merge boxes only.
This object merging is separate and unrelated to the box merging available when reading a layout file into the database, which has a separate merging control in the Set Import Parameters panel.