Mercutio is making fun of Benvolio, saying he would find the smallest things to get angry about to start a fight.
Tybalt enters the scene with his group, looking for Romeo, and Mercutio gets angered, while Benvolio says to calm himself. Once Romeo appears, he trys to explain to Tybalt that they are not enemies and that he has not hurt Tybalt ,as he claims. Yet, Tybalt is not willing to accept this and prepares to fight with his sword.
A fight breaks out between Tybalt and Mercutio(who fights in Romeos defense). Romeo puts himself between the two to hopefully end the encounter. Tybalt however, had other ideas, stabbing Mercutio from under Romeos arm.
After murdering Mercutio, Tybalt and his band escape, leaving Mercutio dying on the ground. With his final words Mercutio curses both families and tells Benvolio to retreive a doctor while taking him.
Benvolio reappears momentarily to inform Romeo of Mercutio's death. Romeo then proclaims to take revenge upon Tybalt for this murder. Tyblat comes back to tell that he will soon join Mercutio in heaven. Then they proceed to fight.
The Prince of Verona enters the scene, demanding to know who started the fight. Benvolio claims Tybalt started the fight, and is now dead, killed by Romeo, then explains the entire fight from when Romeo appeared to speak to Tybalt kindly. After hearing opinions for The Capulets and Montagues he decrees Romeo is exiled from Verona for his crime of killing Tybalt, even though he served justice to Tybalt because he killed Mercutio. The Prince tells both families that they will pay dearly for causing him the loss of his cousin..