Serves as a hint to the game code that the named bone will be used for bone merges (see Attachments) during the game. If this flag is not present, the bone can still be used but you'll get performance warnings.
It can also be used to force a bone existance for the $definebone process. Sometimes when you use Crowbar to write the $definebones lines, it will collapse a bone and simply not write a $definebone line for a bone. Adding a $bonemerge line for all, or just the missing bone, circumvents the bone from being removed.
$bonemerge <bone name>