Git merge affects on working directory and staging area

I am new by Git and trying to know how git merge command works. So I tried a simple git project for example:

I have two branches: master and b. You can see git log for both here (1,2,4 are sample files that are created in branches):

* cf3456b (HEAD, b) add and modify 4 in b
* 68b9086 edit 1 in branch b
| * 81e6490 (master) remove 1 from branch b1
| * e0a6844 modify 2 in branch b1
| * 06bad1d add2 in branch b1
|/  
* c667d3b add 1 in branch master

So
master only has one file: 2
b only has two files: 1,4

Now when I try to do:

git merge master

I saw this message:

CONFLICT (modify/delete): 1 deleted in master and modified in HEAD. Version HEAD of 1 left in tree. Automatic merge failed; fix conflicts and then commit the result.

That is strange for me, I thought before that:

1. merge like a checkout tries to copy content from latest commit of merge in branch to latest commit of merge into branch but opposite of checkout, merge tries to do not change any file in merge into.And finally if both merge in and merge into branches have same file with different status, conflict occurs.
2. I know that git only saves snapshot of files instead of differences. So how git know about changes in latest commits of branches? (In message you can see 1 deleted in master and modified in HEAD which are differences)

Now if my thought was true, no conflict should occur for file 1. So my thought is not true, but how merge works really?