Oh no! The water! I'm in big trouble if I don't fetch it!
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Story
Kingdom Hearts
Merlin the Magician is a wizard who originally lived in Camelot but in Kingdom Hearts he lives in Traverse Town. It is likely Camelot was destroyed by the Heartless forcing Merlin to come to Traverse Town. Merlin helps Sora and the others with their magic, and also introduces Sora to 100 Acre Wood.
Kingdom Hearts: Chain Of Memories
Merlin is not mentioned in Chain Of Memories but it is assumed that he is still living in Traverse Town.
In the first game he lives in Traverse Town but never appears in Kingdom Hearts: Chain of Memories and in Kingdom Hearts 2 he lives in Hollow Bastion. In Kingdom Hearts he lets players practice magic in the magic arena or access to the cavern or "secret waterway". In Kingdom Hearts 2 he is the only character in Hollow Bastion with a home that is seen yet in Kingdom Hearts Leon and Yuffie share a room in Traverse Town's hotel while Aerith had her own room.