I have two raw sound streams that I need to add together. For the purposes of this question, we can assume they are the same bitrate and bit depth (say 16 bit sample, 44.1k
You should add them together, but clip the result to the allowable range to prevent over/underflow.
In the event of the clipping occuring, you will introduce distortion into the audio, but that's unavoidable. You can use your clipping code to "detect" this condition and report it to the user/operator (equivalent of red 'clip' light on a mixer...)
You could implement a more "proper" compressor/limiter, but without knowing your exact application, it's hard to say if it would be worth it.
If you're doing lots of audio processing, you might want to represent your audio levels as floating-point values, and only go back to the 16-bit space at the end of the process. High-end digital audio systems often work this way.
I'd prefer to comment on one of the two highly ranked replies but owing to my meager reputation (I assume) I cannot.
The "ticked" answer: add together and clip is correct, but not if you want to avoid clipping.
The answer with the link starts with a workable voodoo algorithm for two positive signals in [0,1] but then applies some very faulty algebra to derive a completely incorrect algorithm for signed values and 8-bit values. The algorithm also does not scale to three or more inputs (the product of the signals will go down while the sum increases).
So - convert input signals to float, scale them to [0,1] (e.g. A signed 16-bit value would become
float v = ( s + 32767.0 ) / 65536.0 (close enough...))
and then sum them.
To scale the input signals you should probably do some actual work rather than multiply by or subtract a voodoo value. I'd suggest keeping a running average volume and then if it starts to drift high (above 0.25 say) or low (below 0.01 say) start applying a scaling value based on the volume. This essentially becomes an automatic level implementation, and it scales with any number of inputs. Best of all, in most cases it won't mess with your signal at all.