mail merge within contacts folders

I am trying to make a contacts folder to use as the basis for a christmas
card list. I have tried mailmerge within outlook - but outlook just ignores
my 'go' button press. I have tried to copy the contacts folder to amend the
entries to make this the list but I cannot seem to acces the details when I
try to merge onto a labels page in word - all i get is a mesaeg that says
next contact in the word label formatted page. I know you cannot tell me
what am i doing wrong - but how do I:

1. copy my contacts folder so that it will be recognised when i mailmerge
within word;
2. make the mail merge work from the contact folder details when within word
mail merge?

Or indeed any way that I am able to use the information contained within my
outlook to make labels to put on envelopes?

BarryD