I don’t think you’re missing anything. The clip-overlap crossfade feature is not useful for our workflow either. We create documentary-style videos where the interview video and dialog may have to be rearranged many times before the flow sounds right and hits our length targets. Modifying the independent crossfade objects for every rearrangement is a major slowdown. So we avoid the clip-overlap feature entirely and go back to the traditional two-track NLE experience where the higher track does a fade-in or fade-out to reveal the track below it, and the end result looks like a crossfade. There is a checkbox to “Adjust opacity” on the fade-in and fade-out filters that let you see to the track below it rather than fade to black.
For simple videos, the clip-overlap feature may work fine. And it would also be necessary if you want to specify a transition other than crossfade. But that’s rare for our style of video, so we avoid it. But overall, I think the feature is working as expected. It’s just not what you need.