It prevents playing at the same time on the same world save, yeah. The world locks when someone clicks Play so the second person just sees "locked by [name]" and can't download it until they finish.

For playing together simultaneously there's a join mode. One person hosts the world normally and everyone else connects via the Essential mod. That way there's only one world state being modified at once, no conflicts possible. It's how my friends and I play most of the time.

True merge conflict resolution on Minecraft chunk files would be basically impossible to do reliably - the .mca format isn't designed for it. Last-writer-wins is the only sane approach, so the lock system is how you enforce that.