Yes, lighten is under the pop-down menu - normal.
Yes, you will end up with 1 layer at the end, and when you merge them, that is what is supposed to happen.
After you merge your grunge into one layer, open your image up, and it will appear in a separate window. Simply select the Drag tool, and drag it on to your grunge background. You may have to resize the windows to see.
After that, you can resize the image with CTRL/COMMAND + T, and then continue with the tutorial.