The exact semantics of this don't appear to be documented anywhere that I could find.
The semantics I assume is that if we ever have a timer overflow then some code will track the overflows to provide extended timer range, however while I can find implementations using it, I don't see anything that actually checks if they received and LTIMER_OVERFLOW_EVENT and doing anything about it.
I assume that LTIMER_TIMEOUT_EVENT should be used with the callback when a timeout set with ltimer_set_timeout occurs. I can't find where in the iMX timer implementations the LTIMER_TIMEOUT_EVENT is ever passed to the callback, but I may be looking in the wrong place.