An overlay surface (in a PC's video driver) smoothes out all Divx, Flash, DVD, etc video sources. You'll see, when the overlay surface is not available, that the video/DVD is actually blocky without it.
which is typically used in the decoder for the relevant video CODEC; recent video drivers do have hardware support for this, but it's not a fundamental connection. Moreover, deblocking only helps so much.
http://en.wikipedia.org/wiki/Video_overlay
You're probably thinking of a deblocking filter:
http://en.wikipedia.org/wiki/Deblocking_filter_(video)
which is typically used in the decoder for the relevant video CODEC; recent video drivers do have hardware support for this, but it's not a fundamental connection. Moreover, deblocking only helps so much.