difference to understand with co-channel and overlapping channels

From: http://forums.metageek.com/showthread.php?7403-Overlapping-amp-Co-Channel-Communications

Co-channel interference is not really what you would call interference (its more like cooperation). In WiFi a single channel is your medium for getting your data across. So when you connect to an AP on channel 1, your client device and your AP are talking to each other on channel 1. Now if 2 devices on the same channel transmit data at he same time, the transitions will interfere with each other and cause data corruptions. Because of this complex algorithms have been devised so what ANY WiFi device on a particular channel has to work will all other devices on the same channel to ensure that they all take it in turns to transmit any data. Remember only one device can use the channel to transmit at any one time to prevent interference or collisions. So when you put and AP on channel 1 within range of another AP on channel 1, all of the clients and both APs that will be using that channel in a given physical area will all have to take it in turns or contend with each other for the channel regardless of where they connect to (this includes your neighbours Wi-Fi). Putting APs within range of each other on the same channel in this way causes what is know as co-channel interference. Essentially your are adding lots more medium contention because everyone is using the same channel space.

Channel overlap is a different thing all together. WiFi is what we call a Spread Spectrum technology. Which means that it takes the data it has for transmission and spreads it over a range of frequencies or channel's. When we say a device is on channel 6, we are referring to its "centre frequency". It will actually be spreading the transmission over channels 4, 5, 6, 7 and 8. Because of this we refer to channels 1, 6 and 11 as being the only channels that do not overlap each other. When you choose channels for neighbouring APs that are too close to each other, say 1 and 3 for example, some of the channel space will overlap. This causes the data in the overlapping bits to be corrupted and have to be re-transmitted, which in turn can cause all types of issues.

A commonly misunderstood point is that a wireless channel or frequency is your physical medium (bit like a cable, but with half duplex settings) and every device using that channel has to share it, regardless of which network it is connected to.

You should always carry out site surveys in order to mitigate both of these types of "interference" but if you find yourself in a position where one or the other is unavoidable always put up with co-channel interference. Whilst it may increase medium contention it will allow clients and APs alike to operate as designed and will cause you far less problems than that seen by having over lapping channels. Data corruption or loss will increase layer 2 re-transmissions and cause many more problems with your wireless network. Remember channels 1, 6 and 11 are the only channels that do not overlap each other so stick to those.