overdrive is a gear in the transmission that has a ratio of less than 1. This means that the engine will be spinning slower than the driveshaft. For example, if you had a car with a 1st gear ratio of 5:1 and a 5th gear ratio of .78:1, your engine would spin 5 times as quickly as the driveshaft, and in 5th gear, your engine would be turning at .78 the speed of the driveshaft.
It basically saves gas.