A layer shown behind a Popup control and above the background UI. An overlay is responsible for absorbing mouse clicks outside the popup and/or providing a visual effect behind the popup (generally to focus user attention on the popup). See the background behind a Popup-based control such as ComboBox for a demo.
The generic form of the Dialog class uses a ModalOverlay to provide a "lightbox" effect.

This control was discussed in a user interface blog post.