"Merits" means skills. When you have skills you can share them with others. In the ordinary sense of the word, "merits" means that which you can sell to or buy from others. You are promoted in your job or academic level according to your merits. Similarly, in the spiritual field, the things that you do to promote your peace and happiness are called meritorious acts. It is these acts that elevate your spiritual level and lead to the attainment of enlightenment. These spiritual merits are committed with a pure state of mind which follows you as your own shadow which never leaves you. When you do vandana you do it with a pure state of mind. You admire and appreciate the qualities of the Triple Gem and wish to emulate and adopt them in your own life. When you make such conscious effort to espouse them your mind creates room for them and you endeavour to live a life similar to those noble ones who are the embodiments of peace and happiness.
Having cultivated these noble qualities you wish to share them with your dear ones, known ones and even unknown ones. Sharing what you highly appreciate and admire with others is a very generous and compassionate act. Therefore in Buddhist tradition sharing merits with others is also a meritorious deed which is called the dedication of merit. Rejoicing in other's merits also is considered to be meritorious. This means you support and promote the wholesome thoughts, words and deeds of yourself as well as those of others. As you do this with pure intention, this kind of wholesome deed is called wholesome kamma. What you really do in your vandana is make an effort to cultivate the thought of practicing the Noble Eightfold Path. By accepting the Triple Gem as your only guides and determining to practice the precepts you lay the foundation of morality. By contemplating the qualities of the Triple Gem, reflecting on the nature of all conditioned things and reciting the verse on Right Concentration, you develop the spiritual atmosphere to take steps in the practice of meditation. All these are meritorious thoughts.
In memory of deceased relatives people perform numerous merit-sharing ceremonies in order to purify their own minds. They may give something to religious places or to the poor, observe the precepts or teach the Dhamma. Some people may even become ordained for a short period of time and stay in monasteries. Having done one or more of these things relatives or friends perform a ceremony in seven days, three months, or one year in memory of the deceased.
Before the ceremony starts the lay people fill a pot with clean water and keep it before them during the chanting. They also have two bowls, a smaller bowl inside a larger one. Towards the end of the ceremony relatives or friends of the deceased pour water from a pitcher or tea-pot into an empty bowl placed in a larger bowl saying "may my/our departed relatives share these merits." (idam no natinam hotu sukhita hontu natayo.) They let the water overflow into the smaller bowl. Symbolically overflowing water signifies the generosity of living relatives or friends. Water represents life, for there is life where water is. The water in this ceremony also represents the merits without which none can be peaceful and happy just as without water none is able to survive. Just as water gives beings life, meritorious deeds give beings vitality to live. The empty cup represents the deceased relative or friend who is empty of happiness. Just as the cup fills up with water, so the minds of the deceased will be filled with joy and happiness after sharing the merits. Of course, not all the deceased will be in a position to share our merits. Only those who are born in an unfortunate state of existence called "spirits who subsist on the offerings of others" can share our merits. During the merit-sharing ceremony verses are recited by monks or nuns at the end of the pouring of the water into the empty cup.
This merit-sharing ceremony, according to the Tirokuddha Sutta, was introduced by the Buddha himself in order to help King Bimbisara of Magadha in sharing merits with his deceased relatives who had been reborn among the spirits who subsist on the offerings of others.