An overlay segment is a layer 2 broadcast domain that is implemented as a logical construct in the NSX- T Data Center software. Overlay segments do not require any configuration on the physical switches, and they allow for optimal east/west communication between workloads on different ESXi hosts. Overlay segments use the Geneve protocol to encapsulate and decapsulate traffic between the hosts. Overlay segments are created and managed by the NSX Manager.
https://docs.vmware.com/en/VMware-NSX-T-Data-Center/3.2/administration/GUID-316E5027-E588-
455C-88AD-A7DA930A4F0B.html