The dual-calendar view feature was first introduced in Outlook 2003, but has taken a bunch of steps forward in Outlook 2007 to the point where it’s really useful because of the overlay feature.
First you’ll need to change to the Calendar view, and then select more than one calendar in the list.
Now if you hover your mouse over the little arrow icon next to the second calendar you’ll notice it says “View in Overlay Mode”. Of course you should just click the icon at this point.
Now your calendars will be overlayed over top of each other, with the current calendar’s items visually highlighted. Clicking the icon again would put the calendars side by side again.
Switching back and forth between the tabs will visually highlight the items for that calendar. Additionally, you can interact with the grayed items from the other calendars while still in the “merged” view.