How does merging duplicage photos in my library effect my albums

They don't. The originals are merged but the albums they may be in are not altered.

When I merge several duplicates that are in different albums, the merged photo (the selected keeper) will be added to all albums, where the discarded photos have been in. This applies to standard albums, not smart albums. Merging the photos will not change the rules of the smart albums, so smart albums may be modified, when photos get merged.