Let's go through a scenario with double-monster splicing.
Dual-monster Splicing
You've had Bob and George from day 1. Let's say you have some really high stats between the two monsters, like, 125 and 100. (225 total) The average for them normally is 95. That kinda sucks, huh? We thought so, too. So what happens is that when you splice monsters, a hidden counter goes behind the scenes, and tallies up your combined levels, and changes the formula so it's higher. The combined levels to do this are under 100, which is average, 100-249, which is good, 250-399 which is great and 400+ which is perfect. Don't forget that you also combine both of their skill pools into one.
To give another example, the difference between the average of 225 at the lowest splicing level is around 90, but at perfect is around 130. This means in most cases that you will actually raise stats by combining them. This is even better because your monster will start at level 1 and be ready to just pack away the SRP gains.
Note: In order to stop the very strong monsters from growing even more strong, a system has been put into place. For all monsters over 250 combined stats, you will gain slightly (and I mean slightly) less. For those over 500 combined stats, you will lose a good amount. This is because a 5% increase of 100 is 5, and a 5% increase on 200 is 10. This only affects dual-splicing with a great or perfect rating.
There are also rumors of getting some sort of super amazing monster through ages of splicing correctly. But that's likely nonsense.
Splicing Chart
This pretty confusing chart should help you know which monster type you will get when splicing two monsters together.
Single-monster Splicing
Single-monster splicing is a bit different but generally the same. You sacrifice health and a crystal in place of the second monster to be spliced. How much you sacrifice - max of 50% health - along with the crystal type, is how much of the monster's stats will be retained. It is possible to sacrifice 50% health and buy the best crystal and have a monster with slightly better stats than when you went in. And of course the more expensive a crystal is, the better it is!