I love the idea behind this game, and I really wish there were more than 3 levels!
Because the levels were so simple it's not hard to figure out what to do, but it would be good to have some kind of a hint to the player about what effects different materials have. For example, a sign that says "Wood floats!" or "Rocks don't burn!" This would be more important as the levels get more complex though.
The controls worked well but it would have been good to note that hitting space clears any old merges.
The sound effects and the animations were well done. It all felt very... squishy, as it should :)