Hi Meera,
Yes, you really need the Merge Modules, because they contain a lot of files needed for the crystal distribution, including the license file.
The merge modules are not a type of project. You have to create a normal Setup project, in this one you have to add the Merge Modules Files, you can identify them by their extension: msm.
When you are going to add a file, the option "Merge Module" must appear, with this one you can continue.
Bye,
Jahatziel