With the nice visual update in version 4.0, there’s even more reason to take advantage of this feature. Additionally, Hangouts also can serve as the hub for receiving and making phone calls and SMS/MMS messages with your Google Voice number (you’ll also need the Hangouts Dialer for calls).
To enable these features, make sure you have the latest version of Hangouts and then go to the slide-out menu and select Settings.
Then, you’ll need to choose Hangouts as your default texting app. If it’s not set up for this, touch SMS disabled and then select Hangouts among the list of your installed texting applications.
Next, select Enable merged conversations. This will combine SMS messages and Hangouts conversations with a contact into the same strand. When replying to a message, touch the icon at the very left of the screen to switch between Hangouts, SMS, or Google Voice.
In order to also use Google Voice, under account settings select your Google account (instead of just SMS as the option). This will give you the option to choose between your carrier or Google Voice number to reply to texts.
If you pick Smart Reply, Hangouts will automatically respond with whichever number the text was sent to.
In my experience, merged conversations are a rather mixed bag. On the one hand it’s nice to not have to hop back and forth between two strands for the same person. However, the conversation can get rather disjointed, especially if that person doesn’t use Hangouts much on their mobile device.
You can, fortunately, un-merge a specific conversation. Touch the menu button at the top right and select Un-merge SMS. Then, the conversations will break apart into two separate strands.