From looking at the "CompositeShape.cs" class I can see that it contains "public CompositeShape[] Overlays", so it's an array of other shapes I would imagine. That in combination with the description from the changelog itself really led me to believe that it was a way to overlay shapes themselves, like you would for example render gloves or boots shapes on top of the base body shape of a creature.
What you are describing sounds, to me, more like the work of texture overlays, which also exist, are fully implemented and allow for painting a texture on top of a base one. But you might be right that shape overlays are not fully implemented yet, because I just can't find anything about them. Strange that they would be mentioned in a changelog as "being added" if they don't do anything though.
I have to agree with Kristoffer that the lack of documentation is indeed discouraging, especially since what little is there is outdated. A shame consindering the impressive modularity already present with the json system, but I just don't have the time to dig through the code base for too long and figure everything out for myself unfortunately. This is just a hobby I dabble in after work.
Regardless, thank you both for replying anyway