What are overlays used for?
If they're used for what I think they're used for I think it wouldn't
be hard to make an old movie like effect (flying lines and stuff).
Or is there another way?
???
Overlays are used to out text on the screen, like speech, like making a plant pot to say something when you do something, without having to make the pot a character. Or credit text, or so, like there were in "The Island", in the 'intro' and the outro, the storytexts... If you played it... but you can put text on the screen with the TextOverlay functions... I'm not sure about the graphical overlays...
Perhaps with the Rain/Snow plugin, you could make the pieces to fall look like long lines for that grany affect, then you could tintscreen to the fuzzy orange/brown look.