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With the button pushed in (arrow light on the dash illuminated), overdrive is disabled. In this mode, your transmission will shift through 1st, 2nd and 3rd gears, but not into overdrive (4th gear if you will). This is useful for climbing steep grades, pulling a trailer, or controlling your speed going down a mountain. However, in 3rd gear the engine will rev about 500rpm faster for any given speed than it would in overdrive, which means that you burn more gas.
With the button out (arrow light on the dash NOT illuminated), your transmission will shift through 1st, 2nd, 3rd and then into overdrive/4th. This is how you want it probably 90% of the time as it will result in lower cruising rpm's -- better fuel economy and less engine noise.
If you are wondering what "overdrive" means, it literally means that the rear axle over drives the engine. In other words, the engine turns less than one revolution for each revolution of the axle - a ratio of less than 1.1:1. From memory, the overdrive ratio for a 240 automatic is something like 0.82:1, meaning 0.82 revolutions of the engine for each revolution of the rear axle. This is analogous to the highest gear on a 21-speed bike...you are barely pedaling, but the bike is zooming along at 20 mph. Very efficient for cruising.
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