How and when do I use the overdrive (OD) feature on my automatic transmission 1994 Toyota Corolla SE Limited? What exactly is OD?

In most cases you'll leave the overdrive on. The automatic transmission usually manages it fairly well. Even at low speeds in the city, it's not a problem, it'll just never go to that gear so off or on doesn't make any difference. The time to turn it off is if you notice it "seeking", that is, shifting back and forth between 3rd and 4th every few seconds, due to the lay of a particular road. That's not good, so you turn off OD and let it stay in 3rd. At lower sustained speeds, it's possible for seeking to occur between 2nd and 3rd, so you drop it into 2nd and leave it. The other 99% of the time, you leave it in D with the OD on, and you'll be fine. In general, you want to be in the highest practical gear, to reduce engine wear and increase efficiency.

By the way, you may notice that a cold engine will not shift to OD, even at a speed where it normally would. The higher RPM in that case warms up the engine quicker, which is also good for wear and efficiency. if you continue to drive at a speed which normally be OD, it will upshift as soon as the engine reaches the magic temperature.

Overdrive can be THOUGHT OF as a 4th gear. Basically it's a highway gear, used to lower engine RPM's and save gas. Depending on if there is a button to turn it on/off, or you have to shift into overdrive, will determine when it's on or not. In stop and go traffic, just keep it off, but if you're steadily cruising at or above 45mph, use overdrive.

Overdrive is a 5th gear, it's a cruising gear for open road and is meant to save gas because the engine operates at a reduced speed while maintaining the higher speeds. Using it should only be when you are driving over about 50mph and are cruising for a distance. Driving it in gear in stop and go traffic only reduces the engine's power so you won't accelerate quickly, and that's a waste.

Turning it off will put the engine back in driving gear and the engine will increase rpm's and therefore consume more fuel. BUT, you should not be using it driving in the city, you should be using a lower gear. You only use Overdrive when traveling for a distance at sustained higher speed. It is not designed for stop and go traffic, that can actually cause more fuel consumption and your vehicle's power would be reduced. That would be like driving 20 mph with the car in 4th gear - you can't get much power out of it and you'll be guzzling fuel.

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