Mail Merge is always an interesting topic when working with word processing software. In Microsoft Office 2007 I don't think they could have made it easier to learn.
If you are considering learning mail merge you obviously have at least one thing, a large mailing list. Large enough, at least, that you are compelled to learn this technique which is a great time saver.
The second thing you need is a letter, I say letter, but you could do the envelopes as well, or labels, even e-mail. I would suggest having a document which contains, at a minimum, your header, prior to beginning mail merge. The body can be created before or during the mail merge process.
In the graphic above you see that the mail merge function is found under the Mailings tab on the tool bar. In the menu you may select the appropriate document or the wizard. In the video on this page I walk through the Step-by-Step Wizard.
You have the ability to either use an existing source of contacts, which could be a spreadsheet, you may select from your Outlook Contacts, or you can elect to create a new list at this time.
When it's time to drop fields into your letter it's as simple as placing your cursor at the appropriate location on the page and selecting the corresponding link from the right hand tool bar. A window will open to allow you to select different formats for the information.
I hope this video will help tie the process together for you.