An overlay is a procedure that estimates the attributes of one or more features by superimposing them over other features, and figuring out the extent to which they overlap. You use overlays to estimate the attributes of features in a map layer based on data in another map layer.
For example, you can use an overlay to calculate:
The total length of streets in a city
The population, average income, and/or number of competitors near a potential store location
The number of hospitals, trauma centers, and other medical resources around an earthquake fault