PhotoImpact 7 introduced Zmerge - bringing us 3d capability. It is a limited capability. You cannot make a 3d object and spin it round to view it from all sides as you would in a 3d program. And although you can give objects positions in 3d space, they do not grow smaller as they move away from the viewer or bigger as they come towards you. There is no 3d perspective. Nevertheless it is a big step forward for a 2d art program.
So what does Zmerge do? Think of the normal image you see in the workspace, where your objects are in front or behind each other according to where they are in the layer manager, as the PhotoImpact canvas. Zmerge lets you lift objects off the canvas into the space between your eye and the canvas in the workspace. If it was possible to look at it sideways, this is what you would see.
When you select the z-merge tool, which I have outlined in red here, you get options on the attributes bar above. If you select an object in your image - your canvas - and then check the z-merge box, that object jumps up off the canvas into the space between you and the canvas. The distance between the object and the canvas is governed by the z-elevation figure. Even if it is 0 or a negative figure, it is still above the canvas. The bigger the z-elevation number, the further away it is from the canvas. The z-elevation figure is the distance between the canvas and the point of the object which is nearest to the canvas.
You can also see that if you wanted to put another object above that purple sphere, so that it was not touching the sphere, it would need a z-elevation big enough to take in the sphere's z-elevation and the diameter of the sphere.
That is the theory of z-merging. Now that you can get a mental picture of what is going on when we place objects in this virtual space between your eye and the PhotoImpact canvas, we will move on to try some practical uses for it.