Oh, I'm sorry - When you said "merge", I assumed you were talking about when merging an ancestry database entry into your database. I forgot about the other meaning for "merge" in FTM.
When merging multiple instances of a fact in FTM: If the Preferred instance is among the facts that you are merging, the resulting merged fact will become the preferred fact. If the preferred fact is not among the facts that you wish to merge, it continues on as the preferred fact, and the merged fact will continue as an alternative fact, just as the instances you wish to merge are all alternative.
As for the order the instances of a fact are in when looking at the Merge Facts Screen, I've not paid much attention to the order. There are seldom more than 3 or 4 instances of a fact that I want to merge. I simply check the box for the instances of that fact I want to merge and march on.