By default, all user accounts (including root and guest) are created as active accounts and are counted against the license. When you reach the limit of active users allowed by the license you will not be able to create new user accounts manually or invite them to register themselves in the tracker.
If you ban an account, it will become inactive but all the issue that were reported by the user or assigned to the user, and all comments created by user will be preserved as is. Then you can search for issues assigned to this user and reassign them to another person. The banned user account is removed from the list of available assignees.
If you merge an account, all the issues are automatically reassigned to the account that survives during merge. Please note that if you're merging a less privileged user account with a more privileged user account, the resulting user account gets the more advanced permissions.