Mercerizing is a process where the raw cotton is put through a sodium hydroxide bath and then an acid bath. It slightly changes the structure of the cotton fiber, making it stronger and more lustrous. It also somewhat pre-shrinks the fiber so the yarn doesn't shrink as much during laundering as regular cotton.
Mercerized cotton yarn is smoother and shinier than unmercerized cotton making it more suitable for garments and fancier items. It also has less tendency to pill or create lint.
It reduces the absorbency of the fiber, so unmercerized cotton is preferred for things like hand towels and diaper soakers.
You should be able to find mercerized cotton in all yarn weights, just like any other yarn fiber.
Hope this helps!