What does “Mercy within mercy within mercy" mean?

It's describing God (I assume, judging from the capitalised Me), and using the analogy of an onion's layers.

If you take away the outer layer showing mercy, expecting to find cruelty underneath as the true nature, you don't: you find mercy. And if you scratch at that layer to get underneath, you find mercy again. He is mercy all the way through.

In this case, beauty is more than skin deep: it is the entire being.

The statement is similar to Turtles all the way Down. Basically the speaker is saying he is all mercy, without a bit of cruelty. Not something you'd normally say about oneself, but for someone else, you might describe him as "without a cruel bone in his body".