Mercy originally comes from the Latin mercedem "reward, wages or hire" (from which bizarrely we also get "merchandise" and "mercenary"). It appeared in Old French merci to mean "reward, gift, or kindness", and was used in around 1175 to mean "the Christian god's forgiveness for its creatures' offences". The meaning of "disposition toward compassion" is attested from around 50 years later.
Mercy to my mind is among the greater virtues because it cannot be compelled -- only gifted freely. Ultimately, mercy can only be granted by one in power or authority. Therefore, in seeking to show mercy we seek also to circumscribe and direct the exercise of our own power toward good and peace -- which seems to me an innately wise thing.
Mercy and forgiveness have substantial overlap -- so much so that I can't discern which precedes the other. I don't know that we can forgive unless we are also merciful, though we can certainly be merciful without forgiving. Yet some acts of mercy are not acts of forgiveness at all but simply the kindness to lift someone within reach of meeting their own needs.
To me, the desire to be merciful arises directly from our compassion (while forgiveness seems to require both compassion and courage.) The more compassionate we are, the more merciful we shall seek to be. However our ability to be merciful depends mainly on how much power we wield and how many resources we can free to serve our mercy. It's hard to be merciful when you're poor, scared and largely powerless.
As a gift, I think that mercy cannot be bargained for or bartered for -- and if we're truly compassionate it doesn't even need to be begged for, or declared or acknowledged. It comes without expectation of reward or accolade or reciprocity. If it's genuine then it's an action born of compassion and understanding, rather than a posture or stance.
From my skeptic's viewpoint, the mercy depicted in Christian mythology seems fairly haphazard. Some are healed, some are cursed; some gain gifts they don't really need (like the wedding at Cana), others gain needful gifts but only briefly (like the loaves and fishes), others clearly need but gain nothing at all. A few gain without pleading, but most must plead first and a few must bargain. Many of the gifts appear symbolic rather than material, and I sometimes wonder why that's so.
To the extent that merciful deeds show us the shape of another's heart and the measure of his power, I don't see how the mercy shown in the Bible reflects an infinitely compassionate, infinitely powerful deity. I also don't understand or accept that the torture of crucifixion (or any other kind of torture) represents in any sense mercy to others -- and I reflect that it's one of those acts that may look more meaningful after the fact, amid grief and despair of Joshua ben Joseph's followers, than being meaningful at the time.
What I can attest though, is that Christians are among the world's leaders in developing, learning and practicing merciful behaviour. This is clearly a struggle for all humanity, and while there have been some absolutely merciless acts in Christendom just as everywhere else, I am utterly sure that much of the mercy we presently enjoy in our society originates with Christian influence and intent.
So my take is: dodgy mythology, but some of the best practice in the world.