Using Text Merge 

Once BC has completed the comparison it will show up to four panes:  The left, center, and right panes at the top, with an output pane below it.  If you include a center file BC will be able to compare both files to it and mark changes as additions, modifications, or deletions on each specific side.  Changes on the left are marked in blue and changes on the right are marked in purple.  Overlapping changes are considered conflicts and are marked in red.  (You can change the color scheme if you like.)

Conflicts

Any time there are different changes in the left and right side that are on the same lines or within two lines of each other those sections will be considered a conflict and will be colored red in the three input panes.  The output will be considered a conflict.  If the same change is made in both the left and right side it isn't considered a conflict.

Merging Data

You can navigate from difference to difference in both the input and output panes and the windows will stay synched up.  When you are positioned on a difference you can use the Take Left, Take Center, and Take Right commands to accept the changes from the left or right or keep the original from the center.  The "Take" commands are available on the toolbar, in each edit's popup menu, and as buttons next to each section in the output pane.  When it first loads, the output pane will have selected all non-conflicting changes automatically, and each change will be colored to match the pane it originally came from.  While merging you can also edit the output pane directly, which will change the section to yellow.  If you want to revert to one of the original inputs just use the "Take" command again.

Display Filters

When merging, the display filters switch from BC's traditional ones to new ones that check the merging status of each line.  Using those filters you can limit the display to just conflicts or just changes on one side or the other.