In any OS version, probably you would try to cut all the files in one folder and paste them into another folder and delete the empty folder, if you want to have everything in a single folder rather than the two folders, but in Windows 7 or Vista, there is an easier way of doing the same. You won’t have to copy or cut any file from the folder.
If you have 2 folders with names F1 and F2, just rename F2 to F1 and then the computer would prompt you about the change. It would ask if you want to merge the folders into one, because there is going to be the same name for 2 folders. If you confirm, then all the files and sub-directories of one folder would be shifted to other, and the folders are merged.
Thanks to LifeHacker for the tip.