I'm trying to figure out why one would need to do an INSERT and UPDATE in one line of code. The same table?

You might have two tables, Table A and Table B. You want to do a "selective syncrhonization"....if certain rows exist in B but not in A....you want to insert those rows from B to A.....and if certain rows exist in both, you might want to update certain columns from B to A. That's just one of several possibilities.

The MERGE in 2008 also has a DELETE section....so you "can" do an INSERT/UPDATE/DELETE in 1 line of code, though doing all 3 can result in a rather complex statement.