basic subversion question

I had some basic questions..

I have a file hello.txt on which 2 of us are working at the same time.

hello.txt

Line1
Line2
Line3

If i make changes to Line1 and Line2 and add Line4 while my friend makes changes to Line2, what does subversion do when we update the repository with our changes?

Say i do the update first, and my friend does it later.
What happens to our changes to Line2? Or the person who does the last update win?
I can understand that there are no issues with handling Line4 here / may be the issue is that my friend w'dnt be aware of the fact that i had added Line4.

The version system principle is update, merge, commit. If you commit first than the other guy will be required to make an update, a new merged sourced results and afterwards he commits it. I cannot fully describe the merge mechanism, but I can tell you that merging action may result in a valid source or a conflict (the moment when the system wasn't able to correctly merge the files). At this moment human interaction is needed to correct the conflict and just afterwards he will be able to commit his changes.

--
./pope
[the_mindstorm]

oh ok thanks.
Is it possible to integrate a utility like WinMerge with subversion? so that i can do things out of the gui.

The merge and the diff command both have the ability to call external programs to do the compare using the --diff-cmd switch. As long the program takes the same arguments as the GNU diff, it should work.