So, yes, DD overlays could be implemented in dgVoodoo but it'd never be true hw composition. The other restriction is, that dgVoodoo always needs a window for DD even in windowed mode, and it cannot draw out of the window boundaries, unlike original DDraw. The example application you linked controls the whole primary surface (the full desktop) without creating any rendering window, and places an overlay image to the center. That's what wouldn't work with dgVoodoo unless a borderless window covering the whole screen is created after all. I don't know how DD applications and games utilize overlays in general, but if in the same way as the example app (which can be achieved with a transparent layered window without DD), then there wouldn't be much use for all of it in dgVoodoo.
Btw, Win7 supported hw overlays because if it detects and application trying to create overlays then it shuts down the desktop compositor and switches back to "simplified color scheme" (or sg like that, I cannot remember the English term).
With Win8 the compositor cannot be shut down so it's obvious that hw DD overlays are no longer supported. But a new functionality in DXGI appears in return, you can create swap chains and give them to the compositor to emulate overlays within a window. If the display hw supports true Multiplane Overlays then the composition is done in hardware like it was done in the DD-days. It's transparent to the application but I guess if a certain set of conditions are met (like fullscreen sized non-transparent window, lessequal number of overlays than the hw supports, etc) then the compositor just gives all swapchain overlays directly to the hardware instead of drawing them as texture quads to the screen through shaders. And it's a Win10+ feature.