The operation of overlays is relatively simple. When you click on the numbers from 1 to 4 on a source, it activates that source as an overlay.
Imagine overlays as layers that stack on top of each other, similar to the Multi View function.
You can configure the behavior of overlays by going to the menu at the bottom right of the screen.
When you click the button, the following menu appears:
On this screen, you can decide the position, size, and transition of the overlay.
To learn more about how it works, I recommend watching this video: