The Collapse feature collapses edges on a component by component basis and then merges the associated vertices for each collapsed edge separately. Collapse also works on faces, but produces results that are more predictable when using edges. If you wish to collapse and merge a selection of faces you should first try Edit Mesh > Merge To Center.

Area Threshold

The Area Threshold setting specifies that faces with an area smaller than the specified threshold value get collapsed. You must explicitly turn on Use Area Threshold as the default setting is off. The Area Threshold attributes are set on the polyCollapse node.