I have found that with O/D off, i save my fuel when driving in city traffic (with lots of stops) and in hilly terrain here in San Antonio.

Is that bad? I've always used O/D for hilly stuff, but nothing hard core.

Is that the right purpose?

 

The technical definition of an overdrive gear ratio is one in which the input shaft spins slower than the output shaft. For instance, with a typical overdrive ratio of around 0.8, the input (crankshaft) is spinning 0.8 times as fast as the output (driveshaft). In a modern transmission, be it manual or automatic, overdrive is really nothing more than another gear that happens to have a ratio of less than 1:1. In a modern four-speed auto, "4th gear" and "overdrive" are one and the same. When four-speed autos first came out, many of them did not use a "engage/disengage" button. They just had D-3-2-1 on the column shifter indicator. In a four-speed auto, third gear will typically have a 1:1 ratio.

Now, decades ago, overdrive was a little different. An overdrive unit was external and separate from (although usually mated to) the transmission. In those days, an overdrive unit was often a dealer installed option or an aftermarket option. In this case the output of the transmission was essentially the input of the overdrive unit. I believe that some or most overdrive units would work no matter what gear the tranny was in, in effect giving you two sets of tranny gears. Whichever tranny gear you were in, you could shift the overdrive unit into or out of overdrive. (Note: I don't have personal experience with this type of overdrive, so if I am wrong, perhaps some old-timer with first-hand experience can set me/us straight.)