"Over-improving" means spending on upgrades that push your home's value beyond what comparable homes in your neighborhood support. The classic warning is being "the most expensive house on the block." Because buyers and appraisers price a home largely against nearby sales (comparables), there's a practical ceiling on what any neighborhood will pay — and money spent above that ceiling tends not to come back.
Appraisers and buyers both anchor to comparable homes. If similar houses on your street sell in a certain range, an appraisal will lean toward that range no matter how much you've poured in. A buyer, too, has choices — if your improved home is priced well above the block, they can simply buy the neighbor's and renovate to taste for less.
So there's an effective value ceiling set by your neighborhood. Improvements that bring your home up to the top of the local range tend to be rewarded. Improvements that push it above the range are largely spent on your own enjoyment, not resale value.
This is why the Cost vs. Value patterns always come with the caveat: ROI depends heavily on the neighborhood. A luxury kitchen that returns well where comparable homes sell for more may return poorly in an area where comparable homes sell for less.
Your neighborhood sets a practical ceiling on value. Improvements that bring your home up to the local standard tend to pay off; spending well beyond comparable homes rarely returns the extra cost. Improve to fit the block for resale — and only exceed it knowingly, for your own enjoyment.