Each track is a layer. Higher tracks take precedence over lower.
So if there's a background on track one, and a PNG (transparent) file on track two, the background will show through the transparent area.
Add another image with transparency on track three and track one and two will show through its transparent area, as in this example...

The result...

Areas of the image or video can be made transparent by scaling them smaller, or masking. Or even chromakeying (green screen) if there is high contrast between the wanted and unwanted areas. Here, the Happy Face was a PNG and the boy had a white background that was chromakeyed out. Click ? (top-right) for HELP.