It opens a GUI that steps you through each conflict, and you get to choose how to merge. Sometimes it requires a bit of hand editing afterwards, but usually it's enough by itself. It is much better than doing the whole thing by hand certainly.
As per @JoshGlover comment:
doesn't necessarily open a GUI unless you install one. Running git mergetool for me resulted in vimdiff being used. You can install one of the following tools to use it instead: meld, opendiff, kdiff3, tkdiff, xxdiff, tortoisemerge, gvimdiff, diffuse, ecmerge, p4merge, araxis, vimdiff, emerge.
Below is the sample procedure to use vimdiff for resolve merge conflicts.
Step 1: Run following commands in your terminal
git config merge.tool vimdiff
git config merge.conflictstyle diff3
git config mergetool.prompt false
This will set vimdiff as the default merge tool.
Step 2: Run following command in terminal
Step 3: You will see a vimdiff display in following format
║ ║ ║ ║
║ LOCAL ║ BASE ║ REMOTE ║
║ ║ ║ ║
║ MERGED ║
These 4 views are
LOCAL – this is file from the current branch
BASE – common ancestor, how file looked before both changes
REMOTE – file you are merging into your branch
MERGED – merge result, this is what gets saved in the repo
More info about vimdiff navigation
Step 4. You could edit the MERGED view the following way
If you want to get changes from REMOTE
If you want to get changes from BASE
If you want to get changes from LOCAL
Step 5. Save, Exit, Commit and Clean up
:wqa save and exit from vi
git commit -m "message"
git clean Remove extra files (e.g. *.orig) created by diff tool.