Named branches allow assigning a symbolic name to not only one certain revision, like tags allow, but they provide a mechanism to assign a name to a complete branch.
To start working on a branch which is rooted at the current working dir revision, invoke hg with:
hg branch branchname
From this moment on, all commits will get tagged with the supplied branch name.
To get a list of all available branches, use:
hg branches
When merging two named branches, the merge changeset will reside on the branch of the working dir. The other branches head stays.