Why does git say “Pull is not possible because you have unmerged files”?

What is currently happening is, that you have a certain set of files, which you have tried merging earlier, but they threw up merge conflicts.
Ideally, if one gets a merge conflict, he should resolve them manually, and commit the changes using git add file.name && git commit -m "removed merge conflicts".
Now, another user has updated the files in question on his repository, and has pushed his changes to the common upstream repo.

It so happens, that your merge conflicts from (probably) the last commit were not not resolved, so your files are not merged all right, and hence the U(unmerged) flag for the files.
So now, when you do a git pull, git is throwing up the error, because you have some version of the file, which is not correctly resolved.

To resolve this, you will have to resolve the merge conflicts in question, and add and commit the changes, before you can do a git pull.

Sample reproduction and resolution of the issue:

# Note: commands below in format `CUURENT_WORKING_DIRECTORY $ command params`
Desktop $ cd test

First, let us create the repository structure

test $ mkdir repo && cd repo && git init && touch file && git add file && git commit -m "msg"
repo $ cd .. && git clone repo repo_clone && cd repo_clone
repo_clone $ echo "text2" >> file && git add file && git commit -m "msg" && cd ../repo
repo $ echo "text1" >> file && git add file && git commit -m "msg" && cd ../repo_clone

Now we are in repo_clone, and if you do a git pull, it will throw up conflicts

repo_clone $ git pull origin master
remote: Counting objects: 5, done.
remote: Total 3 (delta 0), reused 0 (delta 0)
Unpacking objects: 100% (3/3), done.
From /home/anshulgoyal/Desktop/test/test/repo
 * branch            master     -> FETCH_HEAD
   24d5b2e..1a1aa70  master     -> origin/master
Auto-merging file
CONFLICT (content): Merge conflict in file
Automatic merge failed; fix conflicts and then commit the result.

If we ignore the conflicts in the clone, and make more commits in the original repo now,

repo_clone $ cd ../repo
repo $ echo "text1" >> file && git add file && git commit -m "msg" && cd ../repo_clone

And then we do a git pull, we get

repo_clone $ git pull
U   file
Pull is not possible because you have unmerged files.
Please, fix them up in the work tree, and then use 'git add/rm <file>'
as appropriate to mark resolution, or use 'git commit -a'.

Note that the file now is in an unmerged state and if we do a git status, we can clearly see the same:

repo_clone $ git status
On branch master
Your branch and 'origin/master' have diverged,
and have 1 and 1 different commit each, respectively.
  (use "git pull" to merge the remote branch into yours)

You have unmerged paths.
  (fix conflicts and run "git commit")

Unmerged paths:
  (use "git add <file>..." to mark resolution)

        both modified:      file

So, to resolve this, we first need to resolve the merge conflict we ignored earlier

repo_clone $ vi file

and set its contents to

text2
text1
text1

and then add it and commit the changes

repo_clone $ git add file && git commit -m "resolved merge conflicts"
[master 39c3ba1] resolved merge conflicts

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