Hi
If everything is working OK then an overlay that appears when you play the sequence should be visible on the overlay track. However, you say nothing is visible on the overlay track at the point where the effect plays.
This makes me think it might be playing as part of the clip.
...Have you ever saved an earlier version of your video containing the overlay and then used it in your current project? If so, it would then appear in the sequence as an apparent overlay but not, obviously underneath on the track.
Otherwise I can't think of how you are getting the effect you say, particularly if, as you say, you can see and remove other overlays.
""By the way, what is meant by "linked to the sequence clip" ?? Sounds handy but I don't see how.""
If you right click on the overlay box (the grey box containing the text or image under the sequence line) you get the option to link it to the sequence clip above it, provided it is not longer than the clip or doesn't fall over the junction between clips.
If you take this option you can then move the clip along the sequence line and the overlay will move with it. If you Insert extra clips before or after the clip, the two will still stay together.
Nat