1. Skill inheritance.
The first peon will obtain skills known by the second peon. The only skills transferred are those that naturally belong to the second peon's class. Unlike the first game, the second peon does not lose its skills.

I believe that the ability to equip class-specific clothing is transferred in exactly the same way that skills are.

2. Base Stats.
The higher your stats of the peon, the higher the base stats will be after fusion. If you are familiar with yellow bars in disgaea, this seems to work the same way. Repeated fusions at low level will lower the base stats back down to their original amounts.

3. Level Up %s.
A peon's base stats multiplied by the Level Up % for that stat is how much the peon gains per level. The first peon's %s can be increased as long as the second peon's % is higher. The amount gained is determined by the second peon's level. Unlike the first game, the first peon's % can surpass the second peon's this way, so maxing out stats is drastically simplified.

1-99: +1
100-999: +5
1000-4999: +10
5000-8999: +20
9000-9998: +30
9999: +40

4. Stat Maximums.
Base Stats and Level Up %s are restricted to maximums, which can be raised by completing the Seven World Redux stages. The character that you want to raise the caps on must be present in the active party for each fight. The stat caps will be raised for the active characters if you win, even if the character is dead at the end of the battle.

5. Fusion Cost
A peon's fusion initially costs very little. The fusion cost increases 50% each time for story characters, and 100% for generic characters.

Create a tier 1 butler (we'll call him Hayate).
Create a tier 4 butler (we'll call him Volkanon).
We chose these classes because the tier 4 butler has higher growth % in every stat compared to the tier 1 butler. You can choose any two classes for which this is true.
Level both characters up to 5000+. Fuse Hayate + Volkanon. When prompted to choose his class, keep him as a tier 1 butler.
Level both characters up to 9999+. Fuse Volkanon + Hayate. Change his class to tier 1 butler.

You've now got two tier 1 butlers, one with +40% and one with +20%. Now you just repeat leveling them up to 9999 and alternate fusing them with each other so that their stats keep leap-frogging until they reach the maximum.