Merfolk can be easily described as humans with the lower half of fish. On this site we have discussed; How their tails work, How they sleep, And how they hear. But there is one question that has not been asked yet, what evolutionary reasons would merpeople having arms over things like flippers or fins?
It seems relatively simple to me. Perhaps mermen evolved from the same primate ancestors that we evolved from; a "tribe" of ancient chimps getting set adrift on the ocean and washing up on an island that is ever-so-slowly sinking into the ocean/area of land that will soon be submerged by climate change.
The ancestors of the mermen felt evolutionary pressure to drown or become very good at swimming - which eventually led them to become aquatic. For a real-life example look at manatees and dolphins; both are believed to have evolved from land animals to cope with a watery environment. Primates have been around for 55 million years and most modern animals have evolved within the last 65 million years, meaning there is probably enough time for this to happen.
Merfolk would keep arms as long as they prove an evolutionary advantage while swimming
As this excellent answer to one of @HDE226868's questions points out, animals will go back to water if there is less competition for food there. Basically, a semi-acquatic species spend lots of time near the waters edge and finds plenty of food there. Because of the abundance of food and lack of competition, this species is able to thrive in the water. Time passes and the species becomes more and more adapted to living in the water till they live there full time. We can see this kind of adaptation in modern hippos.
Let's start with humanoids; bipedal tool users. It's less plausible if we start with fish since fish can compete in other ways that don't have anything to do with tool use. Not to say that they couldn't, just the path is clearer with humans returning to the sea instead of fish developing arms.
Somehow, this population of humanoids finds a niche near the water that they are able to exploit. Over time, they will lose whatever body hair they have (since hair just slows you down underwater) and their legs will grow to look like flippers more than feet. However, their ability to shape and use tools remains a definitive advantage over the predators and prey of their environment, so tool use remains with them. Their bodies becomes more streamlined because even though they are still tool users, it never hurts to be able to go faster. Thus, their arms tuck in close to their sides and their skulls and necks change to accomodate both tool use in front of the merfolk as well as rapid swimming while looking forward or "up".
Then another batch of bipedal tool users show up and it all goes to hell with their big floating things on the surface.
Why not both?
Frankly, arms are incredible limbs for manipulating tools. It would be incredibly frustrating to be a sentient, intelligent species, yet be stuck in the stone age because you can't even bang two rocks together.
And so, there exists an evolutionary imperative for this (tool-wielding limbs).
As for why they would develop a human-like torso? For that, we have no good reason other than "because someone wanted to dream up sexy ocean babes who drown people".