If you select "yes", it will only remove the parent/clone relationship of the set in question. This does not affect merging (split/full/not merged) of the loaded database.
You can't full-merge this set (without using subfolders) since rom1.bin would overwrite the other instance. If you select "Yes", it will only remove the "clone of pacman" information from pacman2. So you only make pacman2 a standalone set.
If you select "Yes to all", it only means that further upcoming questions of that type will also be answered with "yes".
If you select "No" (No to all", the prefered merge mode will be set to split merged and you can't change it anymore in the scanner (however usually noone changes the merge mode after one initialization anyway...)