I think the overlay function when playing back two videos is great, but it would be great to be able to save a single video of the overlay and not two screens, each with an overlay.
Yes currently the overlay of the other video is done "on the fly" during playback.
As noted elsewhere, this function might be superseded by a more powerful "aligned merge" but that's another sub project entirely.
However the general philosophy is that you should be able to export exactly what you see on screen, so I'll see how this could be done for the overlay. Now that the dual export function is in, it might be easier to implement.