It can be left in "overdrive" almost all the time. There are a few conditions when it might be good to shut it off. One would be in hilly country when the transmission has to "hunt" for the proper gear. By "hunting" I mean it continually shifts in and out of overdrive trying to find the proper gear for the incline.
Another time to shut it off would be descending mountain grades.
"Overdrive" is actually achieved in the transmission torque converter rather than by a gear set in the transmission itself.
The purpose of the torque converter is to provide a fluid coupling between the engine and the transmission. The fluid coupling allows the smooth transfer of energy from the engine to the transmission. It allows the engine to idle when stopped without needing to depress a clutch, and allows a smooth acceleration from a stop.
An internal vane set in the torque converter is connected by a hub to the engine crankshaft. As the assembly spins it forces the hydraulic fluid in the converter to drive a second set of vanes connected to the outer shell of the converter. Outer shell of the converter is attached to the input shaft of the transmission. There is always some shear force or slippage when the fluid is transferred between the vane sets. This type of coupling provides the smoothest transfer of power but it is not the most efficient for transferring power and it also generates heat.
The "overdrive" button activates a solenoid that mechanically locks the 2 halves of the torque converter together. This eliminates the slippage between the halves and increases the fuel mileage. Since there is no longer any shear force in the fluid there is also less heat generated.
It's called "overdrive" because when the halves of the torque converter are locked together with the transmission in high gear the engine is turning .7 revolutions for every 1 revolution of the transmission output shaft.
When the transmission is in "overdrive" the engine can't provide much braking for descending hills. Remember the engine is mechanically attached to the input shaft of the transmission but turning slower than the output shaft of the transmission. By unlocking the torque converter (allowing the 2 halves of the torque converter to separate) the engine is once again coupled to the transmission by a fluid coupling.
When you let your foot off the accelerator the engine is in an idle condition. The fluid coupling to the transmission is restored. Since the engine is technically idling the fluid in the torque converter is being moved by the half of the converter connected to the transmission. The fluid being moved by the transmission half of the converter will increase in the speed of the half of the converter attached to the engine and increase the engine speed. In essence the transmission is forcing the engine to turn when decelerating down steep grades. Since the engine is being powered by the transmission it actually provides some braking ability.
This is an oversimplified explanation of what the "overdrive" is supposed to do. I'm sure others will come along and give a better explanation, and fill in any gaps I might have left. Hope this helps without boring you to death.
2013 Adventurer 32H