No, we don’t support mounting overlayfs within Incus. That’s something that’s very common with application containers as their layered approach often requires overlayfs.
You could obviously do it yourself, basically get a .squashfs, mount it somewhere, say /mnt/foo/read-only, then create /mnt/foo/delta and /mnt/foo/read-write and set up overlayfs with /mnt/foo/read-only as the underlay, /mnt/foo/delta as the overlay and /mnt/foo/read-write as the mount point, then you can pass /mnt/foo/read-write as a disk to the container.
We may in time add some support for directly having Incus do something like that, but overlayfs has had some annoying limitations around combined use with zfs and with vfs idmap which would make it work pretty inconsistently as a feature of Incus.