Merlin
from the Welsh Myrddin, "man from Carmarthen."

Carmarthen's name in Welsh is Caerfyrddin, translated as "Camp Myrddin." The name derives from the old Roman fort of that name, Maridunum, meaning, the Fort by the Sea--"mari" from "mara"--sea in Latin, and "dunum" from "dun"--"fort" in the Old Celtic languages. It was common for the mixing of Latin and Celtic languages in naming places in Britain, as Latin and Celtic were very similar in their vocabularies. 

When Geoffrey of Monmouth decided to write his History of the Kings of Britain, he combined a figure named Myrddin, who was a sixth and seventh century bard and prince in northern Wales and southern Scotland who went mad during the battle of Arthuret, with a figure named Ambrosius, a boy spawned by a demon gifted with prophecy. According to Nennius' history, Ambrosius was sent for by Vortigern as a sacrifice to the gods so that he could build a stable tower at Dinas Emraise, sometmimes called Dinas Emrys, which, btw, is also the Welsh spelling for Ambrosius--Emrys. Ambrosius was able to escape being sacrificed by telling Vortigern that there were two dragons buried under the hill, two dragons that had been fighting for centuries--the Red Dragon and the White. Vortigern let them out, and they destroyed each other, the Red killing the White, but losing its life in the process. Ambrose explained the the Red Dragon was the British, and specifically, a British leader, and the White Dragon was the Saxon invaders, with whom Vortigern had certain dealings. The Britians would be victorius against the Saxons, but only for so long, and their leader would die at their hands. This is later applied to Arthur, who put a red dragon on his banner, and the Red Dragon of Wales is now seen on the Welsh flag.

The bard Myrddin has several poems attributed to him in The Black Book of Carmarthen (appropriate, huh?) and The Red Book of Hergest, the later of which is also the source for the Mabinogion. The four poems of the Black Book attributed to Myrddin are:

Gwin y Bid hi y Vedwen: "The Birch Trees"
Yr Afallennau: "The Apple Trees"
Yr Oianau: "The Greetings" 
Ymddiddan Myrddin a Thaliesin: "The Dialogue of Myrddin and Taliesin" 

and the three attributed to him in The Red Book of Hergest: 

Cyfoesi Myrddin a Gwenddydd ei Chwaer: "The Conversation of Myrddin and his Sister Gwenddydd" 
Gwasgargerdd fyrddin yn y Bedd: "The Diffused Song of Myrddin in the Grave" 
Peirian Faban: "Commanding Youth"

From these poems, a story can be infered, particularly when one takes into account the Lailoken tales. Myrddin was driven mad by the Battle of Arthuret in 573 AD, wherein the Christian forces of Rhydderch Hael, Maelgwn Gwynedd, and Aedan mac Gabran fought Gwendolau the pagan prince. It is said that this was where Peredur (the Welsh Perceval) met his death. It was in this maddness that he gained prophetic wisdom. This is a common Celtic motif, seen in other characters such as the Irish Suibhne Gelt. He had no real connection to King Arthur's court in his origin--this was a later invention of Geoffrey of Monmouth. 

The earliest reference to Myrddin comes from the "Armes Prydein Vawr" or "Great Prophesy of Britain" attributed to the sixth century bard Taliesin, but which is not older than 930 AD. Prior to that, Nennius tells a tale of a boy named Ambrosius, which was later used by Geoffrey of Monmouth (see below) 

Curiously, while no stories about Myrddin appear in the Mabinogion romances (though his poetry appears in the Red Book), the story of the concealment of the two dragons appears in the story "Cyfranc Lludd a Llefelys." The poem "Armes Prydein Vawr"--"The Greater Prophecy of Britain"--appears in the Lyfyr Taliesin--the Book of Taliesin, but Taliesin attributes it to "Merdin." This Myrddin was the son of Madog Morfryn, the son of Morydd, the son of Mor, the son of Ceneu, the son of Coel, as in Old King Cole, and thus was a member of British royalty. His sister Gwenddydd married Rhydderch Hael, a king of Strathclyde who fought at the battle of Arthuret (c. 575 CE), wherein Peredur/Perceval, Rhydderch Hael, Aedan mac Gabhran and Maelgwn Gwynedd fought with Gwenddolou the pagan king. Myrddin went insane from this battle, presumably because he was on the losing side, which was the side against all his friends. 

So Geoffrey combines these two figures into one Merlin. He changed the name because if he were to Latinize the name Myrddin, it would be spelled Merdin--which looks too much like "merde" to his French-speaking patrons. (Merde, btw, means "shit".) Instead, he substituted the "d" with an "l." In Geoffrey's book, Merlin is advisor to Uther Pendragon; he has Uther shapeshift so that the king will sleep with Igrain and beget King Arthur. Strangly, he then suddenly disappears from the book until the very end, where Geoffrey says that Merlin prophecied that Arthur wouldn't come again until nearly the end of the world. 

Geoffrey is attributed with a book called the Vita Merlini, or Life of Merlin, which tells of Merlin's years after Arthur has died. It relies on the myth of the Myrddin who went mad at the battle of Arthuret, and hides in the forest, comforted by his sister Gwendydd and Taliesin. (Note: some of the later, 10th century pseudo-Taliesin poems make reference to Myrddin as a contemporary of the bard.) Even if Geoffrey didn't write the Vita, he did introduce the Latin-speaking world to Merlin through his book The History of the Kings of Britian. Here, we have the story of young Merlin Ambrosious, born without a father, who King Vortigern tries to use as a human sacrifice. Instead, Merlin shows himself as a prophet, disclosing the two dragons under the hill on which Vortigern was unsuccessfully trying to build his tower. There follows a long chapter full of Merlin's prophesies for Britain's future--written, of course, in the twelfth century and not the fifth, which is when the tale purports to take place. Moreover, it is here that we hear about how Merlin changed Uther Pendragon's appearance so that he could sleep with Ygrain and beget King Arthur. After that, however, this is little or no mention of Merlin in context of Arthur's kingdom; that is an invention of Robert de Boron's Roman du Graal (ca. 1200 AD). 

From here, Merlin goes on to intruge all sorts of medieval romancers. Robert de Boron dedicates a whole third of his Le Roman du Graal to his story, which states that Merlin is the son of the Devil and supposed to become the Antichrist, but since he was baptised, he now only practices white magic. He gets Uther and Ygrain together, and takes Arthur to be raised. He sets up the Round Table, puts the sword in the stone, brings in Guenevere, and councils Gawain and Perceval to start the Quest for the Holy Grail. This is Merlin's origin as the wizard we picture today. 

Later romancers used this idea of the redeemed Antichrist and his doomed relationship with Vivian/Nimue, until crystalized by Sir Thomas Malory's epic La Morte d'Arthur in 1470. Here, Merlin is the famous wizard who engenders Arthur's birth and raising by Sir Ector, puts the sword in the stone, and the rest already added by de Boron. 

Later writers would also have their way with Merlin. He became a useful name to attatch to any ridiculous prophecy in the almanacs of the time, which is what prompts this sequence from Shakespeare's King Lear, as spoken by the Fool: 

This is a brave night to cool a courtezan.
I'll speak a prophecy ere I go: 
When priests are more in word than matter; 
When brewers mar their malt with water; 
When nobles are their tailors' tutors; 
No heretics burn'd, but wenches' suitors; 
When every case in law is right; 
No squire in debt, nor no poor knight;
When slanders do not live in tongues; 
Nor cutpurses come not to throngs; 
When usurers tell their gold i' the field; 
And bawds and whores do churches build; 
Then shall the realm of Albion 
Come to great confusion: 
Then comes the time, who lives to see't, 
That going shall be used with feet. 
This prophecy Merlin shall make; for I live before his time. 

--as Lear/Llyr lived long before the time of King Arthur and Merlin. 

Shakespeare is sometimes (spuriously) connected to a play about Merlin called The Birth of Merlin, or, the Childe Hath Found His Father. Johnathan Swift wrote satirical "prophecies" of Merlin, and Mark Twain used Merlin as a satire of Alfred Lord Tennyson in the book A Conneticut Yankee in King Arthur's Court. 

Merlin lives on in the modern era as archetype (Obi-wan Kenobi), comedic relief (The Sword in the Stone the film, not the book; Excalibur), and the generic wise old man. Some try to link him to the druids, though this cannont be proven, while others hold him to be a bard. Some say he was Taliesin, an idea based on a poem attributed to the bard but of a much later date: 

"Primary bard to Elphin am I
And my country is the kingdom of the summer stars
Iddo and Heinin know me as Merddin (Myrddin/Merlin)
But at lenght, all men will call me Taliesin."