Comparing each version to the base, not to each other
The tool splits each paste into lines and diffs A against the base and B against the base. A line both versions left alone is kept once. A line only one side changed is taken from that side. A line both sides changed, into different text, is a conflict. Two versions sharing text proves nothing: only agreement with the base marks a line as untouched. This is the same diff3 family git uses for merge-file.