It is indeed a ligature
which used to represent the Latin dipthong.
( L-Space - scientia sapientes vocat., Fri 22 Aug 2008, 11:51, archived)

And one shouldn't really use it anyway in Modern English
except within Brand names like Encyclopædia Brittanica.
( L-Space - scientia sapientes vocat., Fri 22 Aug 2008, 11:54, archived)