The overcut setting is used to tell the machine to cut a little further at the end of a shape to help guarantee closure. This is due to the fact that the blade tip is positioned at an angle and not directly in the center of the holder. The overcut amount set will indicate how much it should continue to cut past the end of the path.
Below is an example of how a square would cut if the overcut value is not set high enough and so the start and end points do not meet resulting in a gap in the cutting.