Merfolk is a creature type.
Traditionally, they slither on the ground when not in water. They exist almost entirely in blue, though Lorwyn gave them a secondary color of white, and Shadowmoor black. Invasion and Apocalypse splashed merfolk in other colors, but all of them were still blue.
There are few mechanical ties to merfolk. Aside from Lorwyn, islandwalk is just about the only thing merfolk have in common. They are also traditionally small, cheap creatures, so in the same way that white weenie is famous today, they gave rise to "fish" decks of old times.
In Lorwyn, merfolk play the role of transportation. The Wanderwine was a river that cut through just about all of Lorwyn, and they provided quick travel through the currents. Merfolk, or merrow as they're called in Lorwyn, have the ability to shape the water as they see fit. They can turn the water into any type of solid structure, so they use this to make ferries to transport their passengers. The most famous merrow in Lorwyn was Sygg, who provided invaluable service for the main characters.
Lorwyn was the only block which really supported merfolk as a tribe, though Lord of Atlantis was reprinted in many Core Sets. Most merfolk of Lorwyn play around tapping, untapping, and effects that revolve around such this. Beyond that, merfolk touched on a variety of effects, enabling them to work in all kinds of decks. Aggro, control, and combo are all possible with the merfolk printed in Lorwyn, but this also means that your options get limited when choosing one particular path with merfolk. To further enable the merfolk, "aquitect" cards were printed which let you transform lands into islands and therefore allow islandwalk to work.
The Saprazzan merfolk of Mercadia become legged on land, but some find it quicker to bring the water with them.
The merfolk of Vodalia and Atlantis are an aquatic species who have long, almost eel-like bodies, humanoid faces and arms, and spinelike protrusions at the shoulders. Their scales form multicolored patterns and they are capable of changing colors and patterns at will. Red is a restricted color, used only by those who have gained favor with the empress Galina, and defines leadership and social status.