I just did a little research on this, and from what I can tell, there is absolutely NOTHING about merging factions that takes up a faction slot. Now, I'm not completely savvy with script syntax, but it appears to be nothing more than a simple script command to give over all assets of an existing faction to another.
The cosmetic faction banner/name switching appears to be a different script command, which does indeed take up a faction slot, but the two are not directly linked.
I'm not sure what good the turn over assets script would do, but for situations like the surrender of Ptolemaic Egypt to the Romans, or similar situations, it might still be handy.
On merging factions:
https://forums.totalwar.org/vb/showthread.php?t=91080
On banner/faction name swapping:
https://forums.totalwar.org/vb/showthread.php?t=90946
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