The Compare function takes two similar files (usually an original and an edited version of agreement document) and it produces a new version of the document that contains Tracked Changes for the differences. If the edited version was produced with Track Changes turned on, the newly generated version and the edited version will be identical. There should be no reason to do a compare if the edited version had track changes enabled.

The Merge (or combine) function takes two similar files that do contain Tracked Changes (usually two versions edited by different people, starting from the same original), and it produces a version with both sets of edits as Tracked Changes. This should be the same as if one person had edited the original with Track Changes turned on, and then the second person edited the first person's version with Track Changes turned on. This may produce some odd results if both people changed the same piece of the original text to two different phrases, as both edits will appear. Also, Merge can only keep one set of formatting changes.