Hi Chelsea -
I suggest reading both files into memory, making a dictionary from each, keyed on the 001 values. If memory is a concern, you could do this with just the target records (the ones you will merge fields into).
Then iterate through your source records (the ones you're pulling fields from). Grab each source 001, see if it's a key in the target dictionary. If so, pull whatever fields from it and add them to the target record. Finally, write the target records to file or whatever destination is needed.
If the source file could contain duplicates, you may need extra steps to avoid updating a target record multiple times.
If any questions, feel free to ask! --Andy