Merit is gained through successful missions and doing what the superiors say in Memos. A tour in Recon lasts for 365 days, at the end of that, your Merit score is taken into account and it is decided whether or not you command for another Tour. Therefore, it's a priority to keep Merit high, but often in doing so, you sacrifice morale. It is up to you, the Commander, to decide the importance of the two when the opportunity occurs.
Merit in real life almost works the same way, it reflects how much your superiors approve of you. However, there isn't a nice percentage to tell you exactly how everyone feels about you.