An asphalt overlay is a new lift of hot mix paved on top of the existing pavement without taking the old surface off.
It's the cheaper fix when the pavement underneath is structurally sound, the lot drains and there's room to come up. Every inch you add raises the grade at curbs, gutters, doors and drain structures. Where there isn't room, the edges get milled so the overlay ties in flush. That's usually priced as an edge-mill overlay.
An overlay covers what's underneath. It doesn't fix it. Alligator cracking over failed base will come back through a new lift, so dig out and patch the failed areas before you pave over them.
Overlays run heavier on tons than mill and fill. Ruts and low spots fill with mix before the lift reaches its thickness, so carry a bigger waste factor on a rough lot. And tack the old surface first, or the new lift can slip and peel away from it within a few seasons.