The most famous French "bad word". It means feces, or deep trouble. It's also used when something goes wrong: "Merde !". It can be applied to a person, usually with the adjective "petite".
It's roughly equivalent to the English "shit".
There is also a verb: "merder", which means "to fuck up" (to make a mistake). A variant, "merdre", is the favorite curse of Ubu in Alfred Jarry's "Ubu Roi". For some reason, "merde" is also used to wish someone good luck, for example when he's going to an important interview.
As any other swear word in French, "merde" is more efficient when chained with other swear words:
Putain de bordel de merde ! (Whore of brothel of shit)
But there is much more in this word than what the dictionary says. In France,
"Merde" is the standard answer to something that you don't like. The word includes pride and defiance to those who are above you. "Dire merde à quelqu'un" ("to say merde to someone") means to challenge someone's authority even if that person or institution is stronger than you are.
To grasp the full meaning of the word "merde" in French, you need to read Les Misérables. The fact that Victor Hugo dared to write "merde" in a novel implies that the word had strong symbolic connotations that justified its use. That happens when he narrates the battle of Waterloo, where Napoleon was defeated by the English. Cambronne is an "obscure officer" and his legion is surrounded by the English, with no way to escape:
Through the shades of twilight
they could hear the pieces being loaded; the matches all lighted,
like the eyes of tigers at night, formed a circle round their heads;
all the lintstocks of the English batteries approached the cannons,
and then, with emotion, holding the supreme moment suspended above
these men, an English general, Colville according to some, Maitland
according to others, shouted to them, "Surrender, brave Frenchmen!"
Cambronne replied, "Merde."
Then Hugo apologizes for using such a word and explains :
If any French reader object to having his susceptibilities offended,
one would have to refrain from repeating in his presence what is
perhaps the finest reply that a Frenchman ever made. This would
enjoin us from consigning something sublime to History. [...]
The winner of the battle of Waterloo was not Napoleon, who was put
to flight; nor Wellington, giving way at four o'clock, in despair
at five; nor Blucher, who took no part in the engagement.
The winner of Waterloo was Cambronne.
To thunder forth such a reply at the lightning-flash that kills
you is to conquer!
Note that Cambronne did not actually die, but was made a prisoner by the English and later came back to France. Now he's a metro station in Paris, and the Parisians say Cambronne's word when they walk in une merde de chien.