Quote: "Yes, it does overwrite anything it has to."
In essence yes, but in practice it's a little more complex.
AGK has two areas for files, the location of the source files for your project - which will never be overwritten, and an area used to write files - which will.
This is really only relevant if the same files are used in both, but can be used to override project files.
For example.
Suppose you have a file called "font.png" in you project source. Calling loadimage("font.png") will load this image.
Now if you extract a zip also containing "font.png", the version from the zip will be written to the write area.
AGK will now use the one in the write area in subsequent calls to loadimage("font.png").
If you delete "font.png", the one in the write area will be deleted and in subsequent loadimage calls, AppGameKit will use the original one from the project area.
This could be used to switch level data in and out without needing to change the code used to access it. But is really only useful on platforms where the source is not compressed.
There would be no benefit on Android for example, since the source is stored in compressed format anyway (.apk files are just zip files with a different extension)