A patch file is a Subversion unified diff file, which contains the information required to apply changes to a set of files. The patch may have been supplied by another developer so that you can see changes he has made and possibly commit them to the repository. Or it may have been generated internally by TortoiseSVN when comparing two folders. This happens when you compare a repository revision with your working copy folder, or if you compare two different repository revisions, or if you compare two different repository paths.
In either case TortoiseMerge will show a small window listing the files included in the patch. By double clicking on one of these files you fetch the relevant file and apply the changes. The left pane shows the original file content and the right pane shows it after the patch is applied.
You can edit the file in the right pane exactly as you would in compare/edit mode.