Where is the overlay FS config?
I’d like to reduce /dev/mmcblk0p3 and the overlay at /
And in turn create a persistent /dev/mmcblk0p4 from reclaimed space.
There is no overlay fs configuration, overlay fs is using two working folders on the 3rd partition, overlay fs as such is not limited/ set to any fixed size, but the 3 partition layout is standard and cannot be changed. But you are free to claim space in /mnt/INTERNAL by creating a folder there and store data.
Please refer to docs.volumio.org