Image Overlay merges two RAW (NEF) photos into one.On the surface, this option sounds kind of cool. The problem is that you can't control the opacity or positioning of the individual images in the combined photo. For example, the overlay picture would have been more successful if you could move the werewolf to the left in the combined image so that he and the lantern aren't blended. And you'd also prefer to keep the background of the second image at full opacity in the overlay image rather than getting a 50:50 mix of that background and the one in the first image, which only creates a fuzzy-looking background in this particular example.
However, there is one effect that you can create successfully with Image Overlay: a "two views" composite like the one shown. But for this trick to work, the background in both images must be the same solid color (black seems to be best), and you must compose your photos so that the subjects don't overlap in the combined photo, as shown here. Otherwise you get the ghostly effect.
If you want each subject to appear solid, use a black background and position the subjects so that they don't overlap.Additionally, the Image Overlay feature works only with pictures that you shoot in the Camera Raw (NEF) format. Finally, in order to access Image Overlay, you must press the Menu button and navigate to the Retouch menu from there. Image Overlay is not available if you display the Retouch menu by pressing the i button during picture playback.
To be honest, using Image Overlay or Multiple Exposure for serious photo compositing isn't recommended. Instead, do this kind of work in your photo-editing software, where you have more control over the blend.