Phoronix: Intel Kernel Mode-Setting Overlay Support
While the Intel kernel mode-setting graphics driver entered the mainline Linux 2.6.29 kernel, and is beginning to become the default driver in various desktop Linux distributions, the KMS driver does not yet have a feature parity with the traditional DDX xf86-video-intel driver. However, announced on the DRI development list today is one more feature that has now been introduced into the kernel mode-setting driver and generic DRM mode-setting code...
But let's summarize: Overlay is basically the older way of accelerating video, mostly done by TV-Cards or graphic cards without support for Xv or more recent Xvmc/VaPi/ and the other stuff by Nvidia and Ati.
It's supported by mplayer for example, just use the xover-video-output. However you should only do that if Xv is broken/not implemented with your driver/card. Also it's my experience that any file for which software-output(alias X11) is too slow also doesn't improve that much in xover.
Quite frankly I didn't even notice that xover was broken since the KMS-switch, but that's propably because Xv has been mostly working flawless ever since.
Yeah, the benefits of using "classic" video overlay hardware are usually (a) lower power consumption because you don't need to fire up the 3D engine, and (b) often hardware support for sync-to-vblank.
The drawbacks are (a) you are limited to the filtering implemented in the hardware (which may be very good, however), and (b) you can't feed the output into a compositor so your video does not follow any of the display effects.
Note that some GPUs use Xv for both overlay and textured video; I hadn't heard of a different API being used for overlay before.