A template overlay provides a mechanism for specializing a template. It allows you to conditionally modify parts of a template. In this way, overlays provide a means of adding flexibility to blueprints:
Blueprints make it possible to enforce a common look and feel across a family of related publications
Overlays make it possible for publications to deviate from the common look and feel in a controlled way in order to reflect their unique identity, acknowledge important events or align with local markets
Your publications might, for example, have a similar overall layout, as defined in a shared blueprint, but unique headers and footers defined in publication-specific overlays. You might want to change the appearance of your sports section in some publications to mark the football World Cup. You can do this by adding a "worldcup" overlay to your blueprint and specifying that you want the overlay to be applied to the sports sections in those publications. You might want some publications or sections to have layouts that vary according to the markets they primarily address. You can do this in the same way: add suitable overlays to your blueprint, and then set up the appropriate publications or sections to use them.