Generally speaking, overdrive (OD) is the highest gear in the transmission. Overdrive allows the engine to operate at a lower rpm for a given road speed. This allows the vehicle to achieve better fuel efficiency, and often quieter operation on the highway. When it is switched on, an automatic transmission can shift into overdrive mode after a certain speed is reached (usually 70+ km/h [40-45 mph or more] depending on the load). When it is off, the automatic transmission shifting is limited to the lower gears. For an automatic transmission, it is almost always best to select overdrive and allow the transmission to control engagement of the overdrive. (It may be necessary to switch it off if the vehicle is being operated in a mountainous area or when towing a trailer.) With a manual transmission, overdrive should usually be selected when the average speed is above 70 km/h (40-45 mph).
The automatic transmission automatically shifts from OD to direct drive when more load is present. When less load is present, it shifts back to OD. Under certain conditions, for example driving uphill, or towing a trailer, the transmission may "hunt" between OD and the third gear, shifting back and forth. In this case, switching it off can help the transmission to 'decide'. It may also be advantageous to switch it off if engine braking is desired, for example when driving downhill. The vehicle's owner's manual will often contain information and suitable procedures regarding such situations, for each given vehicle.
Virtually all vehicles (cars and trucks) have overdrive today whether manual transmission or automatic. In the automotive aftermarket you can also retrofit overdrive to existing early transmissions. Overdrive was widely used in European automobiles with manual transmission in the 60s and 70s to improve mileage and sport driving as a bolt-on option but it became increasingly more common for later transmissions to have this gear built in. If a vehicle is equipped with a bolt-on overdrive (e.g.: GKN or Gear Vendors) as opposed to a having overdrive built in one will typically have the option to use the overdrive in more gears than just the top gear. In this case gear changing is still possible in all gears, even with overdrive disconnected. Overdrive simply adds effective ranges to the gears, thus overdrive third and fourth become in effect "third-and-a-half" and a fifth gear. In practice this gives the driver more ratios which are closer together providing greater flexibility particularly in performance cars.
