Information on configuring an external diff/merge tool can be found in:
The command for comparing 2 versions of a file is
hg diff foo.c.
This will compare the baseline and working-folder versions of foo.c and print
unified-diffs in the terminal window. If you add the settings below to
.hgrc file, you can
hg diffmerge foo.c and
have DiffMerge launched to compare the 2 file versions.
hg merge and
hg resolve commands will
merge files. When the settings below are added, Mercurial will try to use
DiffMerge to perform the merge. There are lots of Mercurial options to
control how external merge tools are selected (based upon priority and
file type). Please see the above references for configuration options.