Displaying Overlay images over thumbnail of category type?

There are many ways to do what you want to do. Here is a tutorial that will show you how to get it done. Just alter the css to fit your needs

http://webdesignandsuch.com/create-overlay-on-image-hover-jquery-css3/

as far as linking. You can use WordPress code for that. Such as

 <a href="https://wordpress.stackexchange.com/questions/81732/<?php the_permalink(); ?>"><img src="your image with overlay"></a>

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