Merge modules (.msm) provide a standard method to deliver shared components. Merge modules can deliver related files, resources, registry entries, and setup logic. Merge modules are simplified Windows Installer .msi file. However, a merge module cannot be installed alone, it must be merged into an installation package using a merge tool.

An Example
Active Template Library (ATL.dll) is a standard Windows OS dynamic link library (dll) file which allocates the global handle commonly found at %windir%\system32 location. If a specific application requires this file, there is atl.msm file that contains all the information about atl.dll. You merge the module in an .msi file, the atl.dll is now taken care of and you don't require to include this file explictly in the msi package.

Learn more about merge modules.