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Color Overlay is a very straightforward layer effect. It does what you'd expect. It applies a color to your layer. Now with the blending mode at Normal and the Opacity at 100%, it's going to mean that it's mutually exclusive with other blending modes like Gradient Overlay. If I click on Gradient Overlay we're not seeing that because the color is at 100%. But if I change the blending mode to Multiply we now see a combination of the Color Overlay and the Gradient Overlay.
Color Overlay has one particularly useful application and that is if you're working with Smart Objects, a logo for example, which you cannot in other ways color, Color Overlay can be used to change the color of the Smart Object. Let me show you what I mean. If I come and convert this dingbat to a Smart Object and it now has the Smart Object badge right there, if I try and change the color of this object, for example I have black as my foreground color, I would normally, if it were not a Smart Object, we ought to press Option or Alt and my Backspace Delete key to fill that with black.
It's not going to work. But I can now go to Color Overlay and apply a color to a Smart Object. So it has that very sort of specialized and sometimes very useful application.
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