Definition - What does Overlay Virtualization mean?
Overlay virtualization is a method for creating traffic isolation within a multitenancy infrastructure. Using a form of tunneling between isolated network segments, it allows for scalability and ease of use while providing for separation between the virtual network and the underlying physical environment.
Overlay virtualization is also known as an overlay network.
Techopedia explains Overlay Virtualization
Network overlays are nothing new. Virtual networks created by links such as virtual circuits (VCs), virtual LANs (VLANs), and virtual private networks (VPNs) have been around for some time. Protocols such as multi-protocol label switching (MPLS) and virtual private LAN service (VPLS) were created to join isolated networks across the wide area network.
With the migration to fully virtualized environments, virtual networks also became isolated. Overlay virtualization offers the solution for uniting these network segments.
Overlay virtualization can take many forms. Virtual network abstractions can be constructed using virtual network components, such as switches or routers, but connections to physical devices require some sort of overlay gateway function.