A group of Microsoft Products and technologies used for sharing and managing content, knowledge, and applications.
Hi Perry,
In SharePoint Online, you could collaborate in One Document. Let's see the master document is Book.docx and has different chapters in it. You and your partners log in to SharePoint Online, go to the same library, where the Book.docx is, click to open it(online or in Word) and start to edit. You could get more about how to collaborate in SharePoint Online in this article: Document collaboration and co-authoring
In general, The different documents(.docx files) cannot merge automatically unless you copy them and paste into the master file.
Regards,
Alex