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What is the difference between the Editor > Union command and the Union function in the Geoprocessing Wizard?
The Union command on the Editor toolbar creates a new feature in the Target layer by combining the currently selected features. The command is used to combine either polylines or polygons and the Target layer geometry must match the geometry type of the selected features.
The Union function in the Geoprocessing Wizard combines the geometry and attributes of two polygon feature classes to produce a new shapefile or geodatabase feature class.
For additional information, please see:
ArcGIS Desktop Help > Contents tab > Editing in ArcMap > Creating features from other features > Combining features from different layers.
ArcGIS Desktop Help > Contents tab > ArcMap > Querying Maps > Unioning features from two layers.