"He writes in the book."
Translation:Lui scrive nel libro.
Nello isn't nel+lo, it's ne+lo (where ne is an archaic form of in), and nel is ne+il, so they both serve the same function and their forms follow the same rules as the articles in the compound, i.e. "nello zucchero" because of "lo zucchero" and "nel libro" because of "il libro".
nel = "in il" = "in the (masc.)"
nello = "in lo" = "in the (masc.)"
they mean the same thing, but are used before words with different initial sounds. See http://en.wikipedia.org/wiki/Italian_grammar#Articles or any basic text on 'the' in Italian.