Microsoft has deprecated the overlayering concept, starting with Microsoft Dynamics 365 Finance and Operations version 8.0. We will only explain the overlayering concept in brief, as it's not in use anymore.

In Microsoft Dynamics 365 for Finance and Operations, you can only override an element in the same package where it was originally created. You also have to use a higher layer than the original layer of the element. For example, if you want to override an element created by Microsoft in the ApplicationSuite package, which is in the SYS layer, you have to create a model in the ApplicationSuite package and select a higher layer such as CUS or USR to override the elements.  

The following diagram shows the concept of customization using overlayering:

As shown in the preceding diagram, the ApplicationSuite model is overlayered by ISV1 and ISV2 in the ISV layer and then the customer is overlayered in the CUS layer. All these models will compile into a single assembly. If the same object is changed by the ISV layer and the customer, the CUS layer customization wins.