"female pudenda," 1530s, apparently a variant of malkin in its sense of "mop." Meaning "artificial vagina or 'counterfeit hair for a woman's privy parts' " is attested from 1610s. According to "The Oxford Companion to the Body," the custom of wearing merkins dates from mid-15c., was associated with prostitutes, and was to disguise a want of pubic hair, shaved off either to exterminate body lice or evidence of venereal disease.
This put a strange Whim in his Head; which was, to get the hairy circle of [a prostitute's] Merkin .... This he dry'd well, and comb'd out, and then return'd to the Cardinall, telling him, he had brought St. Peter's Beard. [Alexander Smith, "A Complete History of the Lives and Robberies of the most notorious Highwaymen," 1714]