Jon, you have an automatic. What's best for your automatic is basically leaving the overdrive light off (which means your overdrive is ON... it's backwards from what you'd think makes sense, but that's how it is) and letting the car decide when to kick into overdrive. That means that when the light is off, and you are accelerating at a slow/light pace, the EARLIEST that OD can kick in on an AW71 is at around 35MPH. Overdrive will not kick in before that, and it actually IS your fourth gear. Up to 35MPH, you will be in 3rd regardless of whether that light is on or off.

Your car is also equipped with what is known as kickdown. I'm sure you've noticed by now that when you stomp on the gas, there is a little click at the 'bottom' in which the pedal goes down even a bit more. That is kickdown, and what it does is it tells your car to accelerate as quickly as possible, and to drop down to a previous gear if necessary, and to NOT shift until it is necessary. When you do that, then yes, it will hold a gear until 5k-5500RPM, and then shift into the next gear. If you do this from a standstill, you will run 1st gear almost to 40MPH, and if you let go of the pedal completely, yes, it will most likely shift straight into 4th (OD) if the light is off.

You can also force shift by using your gear selector and having the light on, and shift from 1st to 2nd, and then from 2nd to D (light on means no OD and thus D = 3rd) and then from 3rd (D) to 4th by turning the light off. Thus, you are driving an automatic like a manual almost, except you can not FORCE an upshift. I believe one of the downsides to doing this is that you put more wear on the shifter linkage. I'm not sure what the other downsides of this are though, as people have expressed disapproval of this.

I, myself, do this quite often when I feel the need for a spirited drive in an otherwise slow automatic. :) But don't follow my example, it certainly is not the best thing for your 740 automatic to be forcing gears and revving at high RPM.
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Kenric Tam
1990 Volvo 740 base sedan (B230F)
My Volvo 'Project'