It depends upon how you are holding the base data for the addresses you are mailing to. If this is in some form of flat file (i.e. a database or excel format) then yes a mail merge is the best way of doing this as you can sort the records before merging.
What a mail merge does is allow you to select from a data source and then send a standard letter (or in this case print a list of labels) from that data source.
A basic Microsoft Office (or Microsoft works) course should explain how to do this.