What level of merge functionality does Visual Studio Team System Provide? Can merges be automated if there are no conflicts? What types of files are supported?

TFS supports both manual and automatic merge resolution through its diff/merge tool/engine. Most of the native “source” file types a supported (i.e. .vb, .cs). You can associate any file type to Team Foundation Server and specify which ones can be merged (typically non-binary file types). You also have the option of associating 3rd party merge/diff tools to support other file types (i.e. MS Word, etc.)