What an important topic! In Chinese Buddhism the practice of dedicating or transfering merit (迴向) is of fundamental importance.
In the Avataṃsaka Sūtra (Flower Garland Sutra), the Buddha said that Samantabhadra Bodhisattva made ten great vows in the path to full Buddhahood, which any Mahayana Buddhist should learn and follow - and the tenth vow is "to transfer all merits and virtues to benefit all beings" ("普皆迴向").
Also in the Avataṃsaka Sūtra, listed are the stages of any Bodhisattva's progression to Buddhahood. Amongst the stages are "The Ten Transferences" ("十迴向"). Read more about them here: http://www.buddhistbooks.info/avatam/chapt25.html
I understand almost all beginner practitioners in Chinese Buddhism are taught fairly early to transfer merit every time they do good deeds or Buddhist practices, e.g. charitable acts, eating vegetarian, complying with precepts, reading sutra/mantra, repentance, paying respect or making offerings to the Triple Gems, rejoicing in other people's good deeds or Buddhist practices, etc.
How do you transfer merit? Easy! During or after doing the good or Buddhist deed, think in your heart that you are transfer merit to the beings that you want to transfer merit to. You may also specify how you want the transfered merit help them, e.g. for advancement in Buddhism, for being reborn to the Pure Land, for good health, for cleansing bad karma, for success, for wisdom, for opportunity to learn Buddhism, for meeting other good people... for anything positive really.
In Chinese Buddhism, there are a number of pre-written texts for merit transference. Beginner Buddhists are taught early to use them.
You can transfer merit to any number of beings. You can even state all beings in the Dharma realm as your merit transfer target. A very common practice is to also transfer merit to your karmic debtors (怨親債主).
As another poster mentioned, in the Ksitigarbha Bodhisattva Sutra it is stated that it is of utmost importance to do good and Buddhist deeds in the 49 days after the death of a person and transfer the merit to him/her. The sutra states that 1/7 of the merit will go to the deceased person's bardo, whilst you (the living person doing the deeds) gets 6/7. The mechanism behind this ratio is not explained in the sutra.
I have also read that when you transfer merit to another or many other beings, it is best if you can let go of your desire to hold on to merit - hence you should dedicate all the merit on your hand to others. What would happen is that you get even more merit for trying to give away your merit. Now you can also transfer that "bonus" merit.
Oh, and you can transfer not only your own merit, but also others' merit. Every time you see or hear someone doing something good or Buddhist in nature, you can (similarly, with your heart) transfer that merit to whoever you want.
On the other hand, when you observe a bad or evil act, firstly do not rejoice in it. Secondly you can repent on behalf of the one doing the act. And guess what - that repentance (even if it is not for yourself) is a good deed, the merit of which you can transfer.
With the above two practices, you can make reading newspaper or watching news on TV a Buddhist practice.
As you can probably see, despite the fundamental nature of merit transference in Mahayana, it can be an advanced Buddhist topic.