One of the more than 250 new features in Lion is an enhancement to the Finder that supposedly allows you to combine the contents of folders. In Snow Leopard and prior versions of the Mac OS X, if you placed a folder into a directory alongside another folder of the same name, then the system required you to either cancel the operation and change the folder name or replace the existing folder. Now Lion should offer an option to combine the contents of similarly named folders; however, depending on the way you perform this task the process may not always work as expected.
If you drag a folder to a location that already contains one of the same name, then it appears the option to combine the folder contents does not show up, and instead you are asked to either stop copying or replace the existing folder. Likewise, if you have two folders in the same directory and rename one to be the same as the other, then you will get a warning that the name is already in use. One would expect both of these actions to invoke the option for combining the respective folders, but this is not the case.
The only option I have found that will invoke folder combining routines is to use keyboard shortcuts to copy and paste the folders.
Even if these are intended limitations of the feature, there may also be some bugs with the process, as it appears to only work with folders that contain unique items. If one of the folders contains an item that is the same name as an item in the second folder, then sometimes the system will resort to either replacing the folder or stopping the copy process, instead of merging the folders and renaming the similarly named files within them.
Despite these odd inconsistencies, if the system does show you the option to keep the contents of both folders, then it appears to work fine and combine the contents as one would expect. The only problem is that sometimes there is no option to combine the folders when you might expect there to be.
Overall, while this feature is promising, it appears to still be a work in progress as its behavior is a bit inconsistent. Therefore, my recommendation is to not rely on it to show up all the time; however, if it does show up as you expect, then the combining process does seem to work as expected.