Originally the question was "How do I configure WinMerge as the compare and merge tool for TFS". However, I am changing it because TehOne answered this more general form of the question.
I would have though this would have been asked already on Stackoverflow. I found the answer elsewhere, but I am asking/answering here. It's now a community wiki.
When I was looking for how to do this, I found this post to be invaluable: http://blogs.msdn.com/jmanning/articles/535573.aspx