the memory fusion came about while Cloud was under the influence of Mako Poisoning from Hojo's tests in ShinRa Mansion, during their escape from ShinRa Mansion Zack kept talking to Cloud telling him "war storries" trying to keep him concious, when Cloud finaly regained full conciousness he had blended those stories with his own memories giving him a convoluted view of his own life fused with Zacks life stories...