Before we start, in Utau there are actually two overlap and preutterance parameters. The first is the one you'll find on the oto files, and the second one is on the note properties.
The parameters you find in the oto file is used to tell the resampler which part of the audio file is to take. On the image below, you can see the parameters in the oto file displayed on the waveform of the audio file. From left to right, A is left blank, B is overlap, C is preutterance, D is consonant, and E is right blank.
From the specified parameters on the oto file, the resampler will take the part from A to E. If the target note is longer than the taken part, the part between D and E will be stretched. But if the note is shorter than the taken part, the end of the taken part will be cut. On the image below you can see an example of the taken part from A to E.
Now after we have the taken part, we need to align this part between the other notes. This is where the parameters in the note properties work. The parameters you find in the note properties is used to tell the wavtool how to align the taken part between the previous and next note. On the widget below you can see how the taken part aligned on a note. Try changing the overlap and preutterance value on the sliders.
As you can see, changing the overlap and preutterance values on the note properties doesn't affect the waveform at all. That's why by default the overlap and preutterance values on the note properties are set to the same values as in the oto so they align correctly.
If you set the preutterance value on the note properties smaller than the oto, it will make the note seems delayed, and otherwise. If the preutterance value on the note properties bigger than the oto, it will make the note played sooner. Then setting the overlap value on the note properties bigger than the oto will make the consonant part of the phoneme faded. That's how the values work in most cases.
In the case where the note is just vowel and no consonant, no consonant will sound faded if the overlap value is changed. Changing the overlap and preutterance value on the note properties could be useful in creating smooth transitions between vowels.