Visual Studio Code: Review Merge Changes Side by Side, rather than top down

2022: update for VSCode 1.69 (June 2022), as noted in Audwin Oyong’s answer, there is now a 3-way merge view, which allows a side-by-side resolution.

In this release, we continued working on the 3-way merge editor.
This feature can be enabled by setting git.mergeEditor to true and will be enabled by default in future releases.

The merge editor allows you to quickly resolve Git merge conflicts. >
When enabled, the merge editor can be opened by clicking on a conflicting file in the Source Control view.
Checkboxes are available to accept and combine changes in Theirs or Yours:

And VSCode 1.70 (July 2022) will offer a way to open the regular file (not in 3 way merge mode).
Same as diff editor, it could use an action in the editor title area

See PR 155159 and its new action merge.openResult.

Audwin Oyong adds, based on the release notes:

To turn off the 3-way merge view, you can set git.mergeEditor to false.

Open the VSCode settings with Ctrl,:

^{(From Harshil Patanvadiya’s answer)}

2021: By default, you see all conflicts “top down”, but for each one, clicking on “compare changes” would open a tab with a side-by-side diff.

(from issue 27562)

Not ideal, but a good workaround.

In VSCode 1.71 (Aug. 2022):

Merge Editor: Toggling word wrap should apply to all editors

It was weird when I toggled word wrap in the merge editor yet only the editor I was focused on had it toggled.
I kind of expected all editors to have it toggled.

My rationale is that toggling word wrap is usually a symptom of having long lines and the chances that all three editors have long lines is high if a single editor has long lines.

And:

Improve Merge Editor Story For Files Having/Getting Conflict Markers

Originally we had this icon along to toggle between the raw file and merge editor views. Could use it with this new label too.
git-merge felt out of place as an icon choice to my eyes.