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An overlay network can be thought of as a computer network on top of another network. All nodes in an overlay network are connected with one another by means of logical or virtual links and each of these links correspond to a path in the underlying network.
An example of an overlay network can be distributed systems such as client-server applications and peer-to-peer networks. Such applications or networks act as the overlay networks because all nodes in these applications and networks run on top of the internet.
The main uses of overlay networks can be found in the telecom industry because digital circuit switching equipment and optical fiber are available. In telecom companies, IP networks and telecommunication transport networks combine to constitute the internet and can be overlaid with one or more optical fiber layers, a transport layer and an IP or circuit-switching layers.
Another type of overlay network is the Resilient Overlay Network. It is an architecture that allows distributed internet applications to identify and recover from disruption in connections and interference. The Resilient Overlay Network has a relatively simple architecture and can be deployed in the form of nodes at different locations over the internet.