Spirit Fusion is a technique wherein a spectral fuses themselves physically and spiritually with a spirit, most notably those currently possessing tools. This allows the spectral access to abilities that simply using the tool by itself would have been unable to provide. While the end result is similar in nature to the effects a long-term possession has on a medium, there are a number of notable differences.
The most distinct is that while a medium must stay possessed for an extended period of time for their bodies to resemble their spirit's, spirit fusion allows the spectral to immediately gain access to enhanced abilities. However, the transformation is only temporary and the spectral will revert back to their former shape after a brief period of time. Interestingly, the spectral's clothing is also affected during the fusion process. Isabel has mentioned that Richard Spender often fuses with his spirit, but that he never had the same appearance twice.
Another notable difference is that while physical transformation in mediums is an involuntary side-effect on the spectral's part, spirit fusion is involuntary on the spirit's part and their tool's user can force the transformation against their will. Spirit fusion appears to be extremely taxing energy-wise for the spirit involved, which is the likeliest explanation for its brief duration.