From the Super Mario Wiki
“Truth lies not only in the eyes; sometimes even walls may lie”
Merle is Merlon's son and Merluvlee's, Merlow's, and Merlee's father. He lives in Starborn Valley and, along with the Ninjis and certain Toads, watches over the Star Kids until they are old enough to enter Star Haven. However, during the events of Paper Mario, Star Kids could not ascend because of the trouble Bowser caused in Star Haven. Merle provides Mario and his comrades the Scarf, one of the keys to unlock the door to Shiver Mountain, helping Mario and company in their quest to vanquish Bowser and his minions. The aforementioned quote is a riddle Merle recalled which was imperative to Mario finding Madam Merlar.
 Area Tattles
He's Merle, the person who controls this valley. He's the one who called you. He's the son of Merlon. That means...Merle must be the father of the fortune-tellers Merluvlee and Merlow.