Wikipedia to the rescue... boam boam... Wikipedia to the rescue...
Ok, enough being silly...
According the the wikipedia article on over drive
Generally speaking, overdrive (OD) is the highest gear in the transmission. Most automatic transmissions have 3 speeds and overdrive (fourth speed). Overdrive allows the engine to operate at a lower rpm for a given road speed. This allows the vehicle to realize better fuel efficiency, and often quieter operation on the highway. When you switch it on, you allow the transmission to shift into overdrive mode after the certain speed is reached (usually 30 - 40 mph (50 - 65 kph) depending on the load). When it is off, the transmission shifting is limited to the lower gears. For normal driving conditions, operation of the overdrive should be enabled.
It may be necessary to switch it off if the vehicle is being operated in a mountainous area.
The automatic transmission automatically shifts from OD to 3rd gear when more load is present. When less load is present, it shifts back to OD. Under certain conditions, e.g: driving uphill or towing a trailer, the transmission may "hunt" between OD and 3rd gear, shifting back and forth. In this case, switching it off can help the transmission to 'decide'. It may also be advantageous to switch it off if engine braking is desired, for example, driving downhill. For more details, check your owner's manual.
Gas mileage and drivetrain wear
Using overdrive gearing, the car's engine RPM goes down. This reduces engine wear and normally saves fuel. Refer to your car's owner manual for the proper speed to run at overdrive. However, all engines have a range of peak efficiency; it is possible for the use of overdrive to keep the engine out of this range, thus cutting into any fuel savings from the lower engine speed.
There is some debate on the overall efficiency of overdrive gearing, as it requires more moving parts than direct 1:1 drive, but most will agree that within the transmission, this effect is minimal. The other difficulty can be in the drive shaft rotation speed.
Overall drivetrain reduction comes down to three basic factors: transmission gearing (including overdrive), differential gearing (in the axle), and tire size. The rotation speed problem comes into effect when the differential gearing is high ratio and an overdrive is used to compensate. This may create unpleasant vibrations at high speeds and possible destruction of the driveshaft due to the centrifugal forces or uneven balance.
The driveshaft is usually a hollow metal tube that requires balancing to reduce vibration and contains no internal bracing.
The higher speeds on the driveshaft and related parts can cause heat and wear problems if an overdrive and high differential gearing (or even very small tires) are combined, and create unnecessary friction. This is especially important because the differential gears are bathed in heavy oil and seldom provided with any cooling besides air blowing over the housing.
The impetus is then to minimize overdrive use and provide a higher ratio first gear, which means more gears between the first and the last to keep the engine at its most efficient speed. This is part of the reason that automobiles have been coming with more gears in their transmissions. Also, it is why you seldom see more than one overdrive gear in a vehicle except in special circumstances.