Théoden was happy to have Merry in his company as long as he required jolly companionship, but his dismissal of Merry at this point shows he doubts the hobbit’s skill in battle and can’t foresee Merry being of more use than he would be a hassle. However, it seems that Aragorn knew Merry would be involved in combat somehow, proven by his request of Éowyn to outfit Merry in armor.