What damage can be done if oil is overfilled?

When you overfill the crankcase by a quart or more, you risk "foaming" the oil. If the oil level gets high enough, the spinning crankshaft can whip the oil up into a froth, like the stuff that sits on top of your cappuccino; and the problem with that is that the oil pump can't pump froth. It's like trying to drink from a straw when there's not much left in the glass -- what you get is mostly air. And air can't lubricate your engine.

The same principle is applicable to transmission fluid; do not overfill. Always fill to the levels to the car specifications.