In iPhoto, merging two 'events' (the equivalent of folders, I suppose), is as simple as clicking and dragging one event icon on-top of the other.
Your actual photos are stored in your User's Picture folder in the 'iPhoto library' package (which is managed entirely by iPhoto, and should not be modified). If you use iPhoto to manage your photos, there's no reason to keep copies anywhere else on your computer (but you should always have a backup of your iPhoto library, of course).