Blending is using two or more similar products in conjunction and adapting stats as need be to make the fit. It would also include using any material from outside an official product line to enhance gaming. Often this was done with OD&D material and AD&D 1e material but also included using 3rd party generic items and books like Lord of the Rings.
The first example of this in my gaming experience was from my first DM. He loved the Greyhawk setting but thought it lacked a little bite. So he picked up the Judges Guild City-State of the Invincible Overlord and made that his capital and primary urban setting, surrounded by great forests and craggy mountains full of dwarves, dragons and gold and fueled by the legends of Greyhawk.
It worked. He was a master at this type of blending and it was always his strong suit. The stories he could weave in those locales (with a bit of help from various modules and supplements) was always entertaining. This was also the first time I saw how you could recycle EVERYTHING. Got a used dungeon map? Flip it and change the entrance and items. Voila! New map :)
The materials blended in kept getting wilder with each passing session until finally nothing was off limits. I think it finally broke down when people started pulling real weapons on each other (I actually had someone come at me with a knife).
Blending is one thing...slicing and dicing...fellow players...quite another.
Next up: What is 'Welding'?