What happens to returned merchandise?

What do stores do with returned merchandise? Do they quietly resell it as new to unwitting store customers? Do they sell it as used on some other market somewhere? Do they return it to the manufacturer? Are they required to sell it for less and/or to tell consumers that they are buying returned merchandise?

For example, if someone buys a digital camera, uses it, and then returns it, will the store sell it again to someone else at the same new price, even though it's not actually new? What about a suit or dress?

Is there a way to tell if you are paying the price for new merchandise but are instead getting returned merchandise? Is there any legislation relevant to this?