In 2-way Text Comparisons
All differences between the 2 sources are considered as conflicts, because there is no way to decide which block to keep in the result view.
Ignored changes are not displayed as conflicts.
In 3-way Text Comparisons
When comparing three files, Ellié Computing Merge can deduce in many situations what changed since the ancestor file was last modified. When the differences between the left and right files with the ancestor concerns related portions of the ancestor, the software cannot decide what to do, it defines a conflict so that your attention is attracted to the given portion of the file.
You can specify criteria to force Ellié Computing Merge to mark as conflics changed blocks that are not really overlapping. To do this, open the Document Options dialog (F11) and show the "File Merges" screen. Change the "Surround changes" combo, and the security distance.
These options are combined to select which changes should be considered as conflicts. The changes considered as conflict will block a full automatic merge in folders for example and will force a manual review. The different options are: All, Which strictly overlap and Which are distant from less than (Security distance).
If you combine a small value of Security distance (such as 1 or 2) which is activated when Which are distant from less than option is selected, you will both rarely have simple correct changes highlighted and get changes from different sides near from each other highlighted preventing dangerous automatic merges. | 
