This feature is used in the context of importing employees from Xero.
Settings > Xero Add-on > Step 3: Automatically Setup Employee Files
We check the email addresses of any employees you import in this step.
If they match the email address of anyone in Employment Hero, they will be shown to you.
If duplicates do exist, you can overwrite an employee file using the drop-down menu (as below):
Instead of creating a duplicate file, you will replace the existing Employment Hero file with the information from the Xero file.
For example, if we are importing the employee "Mike Myers" from Xero. The "Overwrite Employee File" drop-down vlist tells us that there is already an employee "Mike Myers" in Employment Hero. We should select this employee from the drop-down list and overwrite the existing EH file with new Xero information. This also establishes the sync between his EH file and Xero file so that you can edit his information in EH and have it sent to Xero.
The above is usually a good way to fix an employee if they are not syncing to Xero.