Overlapping filters occur when two or more filters share the same 'filter space'. That is, packets with certain attributes have to choose between the two filters.
Take the follow configuration for example:
The goal of this setup is to restrict all machines to 10K/s except for 192.168.0.123. That machine is to be allowed unlimited bandwidth.
These filters actually conflict with each other because any TCP packets received that are destined for 192.168.0.123 have to choose between the two filters. They overlap in such a way that it is impossible for certain types of packets to know which one to use.
Whenever two or more filters overlap like this, a clear path for packets must be specified. Bandwidth Controller can do this automatically if you do not wish to do it yourself. Otherwise, you can configure it manually using the Overlapping Filters Window.