Overlays are special hardware only surface's that can be displayed without changing primary surface contents in any way. This is generally used to display video or still images independant of the primary surface content. Overlays are considered to be on top of any other screen components, thus the only thing that will overwrite an active overlay is another overlay with a higher z-order.
Some overlay hardware requires a certain configuration for the destination rectangle relative to the source rectangle. Check the appropriate properties of the TDDCaps object to ascertain the appropriate stretch factors to be applied to the destination rectangle.
The source surface is often used to receive data directly from the video port. The source rectangle may need to comply with certain parameters in a similar manner to the destination rectangle.