Half of the 598 parliament members are elected by direct vote on a "first past the post basis". But the other half is elected on the basis of party lists for each of Germany's 16 federal states. This second ballot is more important for the national outcome because it decides on the basis of proportional representation how remaining seats are distributed.
Under the system of "Ueberhangmandate" or over-hang mandates, a party which gains more direct mandate seats, for example 35, than proportional seats, say 32, would be entitled to a bonus of three extra overhang seats.

The Bundestag is being elected over regional lists (Landeslisten). Every regional state (Land) has a certain number of mandates. Every party gets the percentage of mandates according to the percentage of second votes it received. If a party wins more direct mandates in this Land than it should get in accordance to its percentage of second votes, the number of direct mandates exceeding the number of mandates it should get according to second votes is the number of Überhangmandate it gets.

Example:

In Rheinland-Pfalz, 30 mandates are available.

Here the percentages of second votes and the number of mandates resulting from that:
SPD  34,6% --> 10 mandates
CDU  36,9% --> 11 mandates

It is possible that CDU wins 12 direct mandates: 1 more than it should get according to its relative majority. This 1 mandate would be an Überhang mandate.

Half of the seats of the Bundestag are decided winner-takes-all in the districts according to the "first vote" (Erststimme). The other half is divided proportionally over the party lists according to the "second vote" (Zweitstimme). If a party wins a greater share of the districts (Direktmandate "direct mandates") than of the proportional vote, the number of seats in the Bundestags increases by those Ueberhangsmandate. There is of course a fixed number of districts, so you would expect that the number of seats in the Bundestag is that number times two. But it so happens that that's not the way they do it. Don't ask me why...

If you can't convince them, confuse them. (Harry S. Truman)