Why would cryptozoologists pay any attention to something as weird as mermaids and mermen? To answer that question, we first need to look at the history of these legends and sightings. Mermaids and their male counterparts, mermen (both sexes are collectively referred to as "merfolk" or sometimes "merbeings"), are found in legends and fairy tales along every coastline in the world, from Scotland to Hawaii, from Australia to Africa. Along with being geographically widespread, these tales are very old, dating back to the earliest written records from ancient Sumeria. As you might expect, merfolk are not a popular topic in cryptozoology. Since they sound so unreal, anyone working in cryptozoology who pays much attention to them can end up very embarrassed.
However, merfolk are the object of a surprising number of first-hand sightings and modern reports. The sheer volume of these reports can often force cryptozoologists to pay attention. Therefore, mermaids and mermen are more than just a preoccupation for fringe cryptozoologists. Even though merfolk are biologically absurd, some mainstream cryptozoologists have devoted considerable attention to trying to unravel this mystery.
The older fairy tales and today's sightings differ in a number of important ways. Although fairy tales like to describe mermaids that are blond, talkative and entirely human from the waist up, tales from first-hand witnesses generally describe mermaids who don't talk at all, who have green or black hair, and who have some fishy characteristics on their top halves.
There are several different scientific theories that have been put forth to explain mermaids and mermen. One idea is that merfolk are animals. They might be some variety of undiscovered fish that has a top half that simply looks human, or they might be a variety of primate that evolved to a half-aquatic lifestyle. Unfortunately, not much evidence has come forth to support either idea. If merfolk exist and are animals, they must be incredibly rare, for science has never managed to get a dead body despite the fact that merfolk are supposed to love hanging about near shore, where capture should be easy and bodies would probably wash onto the beach.
Another idea holds more promise, but strays outside the normal confines of cryptozoology. According to this idea, merfolk are actually intelligent aliens. This idea is supported by the earliest merfolk legends, which describe semi-aquatic "gods" that came from the stars. If this idea were true, merfolk would be the descendants of these ancient aliens, perhaps ones that had been genetically modified to make them look more human and thus get along better with their human subjects. At some point, the set-up for playing gods collapsed and these remnants were stranded here to live out their lives apart from humans. This would explain why we don't capture mermaids or find bodies, because an intelligent race, unlike animals, would have the ability to prevent such occurences. Unfortunately, even though this idea makes for an attractive story, it doesn't have much going for it other than some really old legends.
Other explanations lean more towards the supernatural and, thus, are of less interest to cryptozoologists. Mermaids are explained as spirits of the water, as shapeshifters, as a subcategory of fairies, even as a type of demon.
In the other direction, cryptozoologists sometimes decide to classify other weird humanoids as merfolk, in order to continue their investigations into merfolk without seeming so much as if they are researching a fairy-tale creature. These researchers have lumped together a number of weird creatures under the heading of "merfolk" such as chupacabras and various lizardmen, frogmen and things that look like the (fictional) Creature from the Black Lagoon (this movie was based on legends of the South American "gillman"). Then, these cryptozoologists say that merfolk legends and sightings are actually based on sightings of these other cryptids, or that these other cryptids have been out-competing the more stereotypical merfolk and thus replacing them. In this view, the idea of aquatic primates once again surfaces, in the form of speculations on the Sea-Ape (a cryptid from the Bering Sea, near Alaska) and hypothetical relatives of the potto (a very weird, but real, lemur).
In addition to the various speculations in cryptozoology as to whether mermaid reports might represent a new species of some sort, there is another connection between mermaids and cryptozoology. Some reports of mermaids link them to sea serpents and lake monsters. There are several ways this link can be formed. Firstly, there are legends about mermaids and other water spirits commanding sea monsters and lake monsters. Secondly, a few mermaids are reported to have extra-long tails, like sea serpents, instead of a fishy tail. Thirdly, a few rare mermaids are supposed to be shapeshifters who alternate between a mermaid form and one that resembles a sea serpent. For example, Morag, the legendary monster of Loch Morar, is said to appear in one of two forms. One is a beautiful blond mermaid, the other is a many-humped monster resembling Nessie. According to local lore, Morag appears in her monster form when someone is about to die.