What does -u of diff really do

It's called "paging output" or (somewhat erroneously) "pagination" …

… and man does it by invoking your preferred pager shell command, named by your PAGER environment variable, upon the output of whatever pipeline was used to generate the output form of the manual page. It falls back to a default if you haven't specified a pager command. On early Unices the default pager program, that man invokes as the default pager command with known hardwired options, was pg. On your system it is probably more or less. Some man commands look at other environment variables for pager commands, as well.

You do it by doing what man is doing: pipe the output of what you want to see into the standard input of a pager program.

You should get yourself a good book on Unix. There are a fair few that explain this, which is a very basic feature of the system. A simple Google Books search for pager unix more by me today turned up over a hundred books that discuss this. (I stopped counting at a hundred.)

You don't need patch for this; it's for extracting changes and sending them on without the unchanged part of the file.

The tool for merging two versions of a file is merge, but as @vonbrand wrote, you need the "base" file from which your two versions diverged. To do a merge without it, use diff like this:

diff -DVERSION1 file1.xml file2.xml > merged.xml

It will enclose each set of changes in C-style #ifdef/#ifndef "preprocessor" commands, like this:

#ifdef VERSION1
<stuff added to file1.xml>
#endif
...
#ifndef VERSION1
<stuff added to file2.xml>
#endif

If a line or region differs between the two files, you'll get a "conflict", which looks like this:

#ifndef VERSION1
<version 1>
#else /* VERSION1 */
<version 2>
#endif /* VERSION1 */

So save the output in a file, and open it in an editor. Search for any places where #else comes up, and resolve them manually. Then save the file and run it through grep -v to get rid of the remaining #if(n)def and #endif lines:

grep -v '^#if' merged.xml | grep -v '^#endif' > clean.xml

In the future, save the original version of the file. merge can give you much better results with the help of the extra information. (But be careful: merge edits one of the files in-place, unless you use -p. Read the manual).