Merge Modules can only be merged into Windows Installer packages. Once you have a .wxs file that creates a Windows Installer package, it's just a matter of adding two lines (yes, only two lines are necessary) to merge a new Module. In your .wxs source file, add the following lines:
<?xml version='1.0'?>
<Wix xmlns='http://schemas.microsoft.com/wix/2006/wi'>
<Product Id='PUT-GUID-HERE' Name='Test Package' Language='1033'
Version='1.0.0.0' Manufacturer='Microsoft Corporation'>
<Package Description='My first Windows Installer package'
Comments='This is my first attempt at creating a Windows Installer database'
Manufacturer='Microsoft Corporation' InstallerVersion='200' Compressed='yes' />
<Media Id='1' Cabinet='product.cab' EmbedCab='yes' />
<Directory Id='TARGETDIR' Name='SourceDir'>
<Directory Id='ProgramFilesFolder' Name='PFiles'>
<Directory Id='MyDir' Name='Test Program'>
<Component Id='MyComponent' Guid='PUT-GUID-HERE'>
<File Id='readme' Name='readme.txt' DiskId='1' Source='readme.txt' />
</Component>
<Merge Id='MyModule' Language='1033' SourceFile='module.msm' DiskId='1' />
</Directory>
</Directory>
</Directory>
<Feature Id='MyFeature' Title='My 1st Feature' Level='1'>
<ComponentRef Id='MyComponent' />
<MergeRef Id='MyModule' />
</Feature>
</Product>
</Wix>
Now when you compile your Windows Installer package source file, it will include the installation logic and files from the Merge Module.
C:\test> candle product.wxs Microsoft (R) Windows Installer Xml Compiler version 1.0.1220.15022 Copyright (C) Microsoft Corporation 2003. All rights reserved product.wxs C:\test> light product.wixobj Microsoft (R) Windows Installer Xml Linker version 1.0.1220.15022 Copyright (C) Microsoft Corporation 2003. All rights reserved
Now when you install the package, you will see that it creates a directory called "Test Program" in your system's "Program Files" folder. The files readme.txt and readme2.txt will be installed in the "Test Program" directory.