Demons are both your enemies and allies in Shin Megami Tensei IV, of which there are over 400 different ones. The Demons in the game are separated into different races, which greatly impact the Fusion mechanic, as well as possibly the kind of skills they will learn. There are two main ways to get new Demons to join your team, which is by using the Talk skill to persuade them to join, or by fusing those you already have into a new one.
It isn't until the second quest in the game that you will get your very first Demon companion, which is acquired using the Talk skill. When you use this, you will begin talking with the Demon and they will usually ask you a series of questions. Depending on your answers, they might join your party. Sometimes, they will ask for Macca or items, and giving them what they want might greatly increase their mood towards you. Persuasion will sometimes make the Demons give you items instead.
Fusion is the act of taking two (or more) Demons and creating a completely new one as the result. The outcome of the fusion is dependent on the race of the Demons used in the fusion. A majority of the Shin Megami Tensei games follow the same formula, where the average of the ingredients used in the fusion is determined what Demon will be created.
- (Base level of Ingredient 1 + Base level of Ingredient 2)/2 then rounded up to the closest Demon of the resulting race
One of the newer aspects introduced in SMT IV is the ability to inherit the skills you want on the newly created Demon. Also, the game will suggest Fusions in case you don't want to fool around with the system. Whenever you recruit a Demon, either through persuasion or fusion, they are entered into a Compendium, which keeps track of them all. This Compendium allows you to look up certain skills and then create a fusion based on those skills.