"...turning slower than the output shaft of the transmission, but how does this happen?"

The OD (like an automatic tranny) uses a planetary gear train. This is a different arrangement than the conventional spur or helical gears found in a standard transmission.

"...interpreting this correctly, that means that in overdrive the rear wheels turn one revolution for every 0.79 revolutions of the engine..."

Almost. For every driveshaft revolution, the motor turns 0.79 revolutions.

"...the engine is making LESS torque at 2000rpm..."

Not necessarily. The engine produces torque (at whatever speed) in response to your throttle position. Of course, the maximum torque available at 2000 is less than the maximum torque available at 2500 rpm. But that's on;y at wot and at optimum conditions.

(Question: If you rev your engine to 2500 sitting in the driveway in neutral, how much torque is your engine producing?

Answer: Just enough to overcome friction and pumping losses -- no more.)

"...turning considerably slower but I am able to maintain speed AND I get better mileage..."

Wellll..... your mileage should probably be about the same, maybe a tad better. The big savings is in engine wear and noise 'n vibration.

"...we all know that this is more efficient than the 1:1 "direct drive" ratio of 4th..."

"Efficient" may be a poor descriptor. Direct drive might be better 'cause of less friction losses in the tranny. Efficiency is, strictly speaking, a ratio of output to input. Output (useful output) is power to the wheels, input is BTUs -- fuel consumed.

Certainly OD is more comfortable and pleasant than straight 4th.

It takes the same amount of energy to overcome the air and rolling friction of 65 mph, regardless of 4th or 5th gear. The only difference is the added engine friction at the higher rpm of 4th gear (vs. 5th gear). If you're really seeing that much difference in fuel consumption then something's not right -- maybe with your FI. More likely is that in 4th gear you adopt a "spirited" driving style.

"...how can the engine turn slower (way out of its "power curve"), maintain speed without lugging down AND use less petrol?"

You can't always maintain speed. For example, at 80 mph, fully loaded, and headed up a hill you might shift outta OD to maintain speed. Why? Even though you floor it, the engine can't produce the required torque. Moreover, the OD REDUCES the torque at the rear wheels (just like a lower gear multiples torque, but at the expense of speed).

Incidentally, this is one of the tricks used by the designers of the new "dual fuel" vehicles -- the ones where a small gas engine runs an alternator, charges batteries, and the car is driven by electric motors (we hope with dynamic braking). When the engine runs, it runs at one defined speed. This speed is optimized for fuel consumption, friction, thermodynamic efficiency, and alternator efficiency. So you get the most Watts for the least fuel.

"Irish have a tendency to drink..."

Pour me another Guinness Stout!!!