For example, say someone wanted to combine the word SEO and Ohio for a domain name. (to be clever)
Lets call it SEOhio.com
If someone searched SEO in google, is the word “SEO” highlighted and taken into account for search engines? Or only the word “Ohio”? Or both?
Yes but for this you have separate you combined domain name say as per you want SEOhio.com but this will confuse search engine in matter of what to read say whether to read it as SEO or whether to read it as Ohio.
Thus to clear this confusion we are using hypens (-) and by using this you domain would be like this SEO-Ohio.com and this will be more clear for search engine to read it as its about SEO in Ohio as hypens are easily read by google as space.
For more details you can search more for domain optimization topics. One I am going to share it here, might you will get some idea from it:
www.seo-gold.com/seo-tutorial/domain-name-choice
You are talking of combining two words but what you have actually done in the example is create one that doesn’t exist, i.e. SEOhio. So Google does it’s best to interpret what the search is for and decides that it is SE Ohio.
If instead the two words are properly combined so that the search is for SEOOhio then Google separates the two words and produces a search for SEO Ohio, but does ask if you would prefer to search for the original term SEOOhio.
Also remember that domain names are not case-sensitive, so while you might think that having SEO in capitals looks kinda cool and helps people to see the clever word-play in the name, remember that search engines will just see it as “seohio”. While Google is good at figuring out words within a domain/file name, I think that using a strategy like this might confuse it.
That doesn’t mean that it’s a bad domain name to choose - it might be very marketable, but you just have to be aware that you won’t necessarily get as many keyword matches on the domain name as if you went for seo-ohio.
Seo and ohio may or may not be seen as the same by search engines, so it is better to play it safe.
In Google terms, seo_ohio and seoohio are (virtually) the same, and seo-ohio is the same as seo ohio.
How they would look at the contraction of seo and ohio whilst losing one o, is anybody’s guess and probably rely on context and proximity. No doubt it will give you a higher ranking for seohio than for any of the aforementioned options, but that is only because there is little or no competition for the exact spelling.
What is the reason for your question?
It is advisable to separate the words with a hyphen in the domains (seo-Ohio). It will also be easier to remember for the people who will type your domain in their navegator.
On the other hand, if you regularly need to tell folk your domain name and/or associated e-mail address, then having to specify the hyphen every time starts to get wearing. A group I belong to registered (something like) here-there-social-group.co.uk, because it was easy to read - and having to specify “here hyphen there hyphen social hyphen group” is now driving us nuts. 
True as that may be, leaving out the hypens can have a distinct influence on the serp placing, and not necessarily for the better.
I think it makes a difference to how easy it is to read without hyphens whether the words start and end with the same letter, e.g. seoohio looks kind of funny with two o’s in the middle.
But in the example you give heretheresocialgroup I feel its not difficult to separate the words visually. My own site name has four words to it without hyphens and there is no clash of start/end letters so I think it works fine, and I can imagine how tedious it would be to have to explain the hyphens each time:)
But anyway in this case it defeats the object, because the idea was to create a name that was one word and catchy.