The overlay array is an array of functions that take self: super:. By including import as the function directly, this is calling import self, and using that as part of the definition of self. import appears to call builtins.toPath on its argument, which in turn calls toString (and then interprets the results as an absolute path). toString can accept a set, if the set contains a __toString = self: … attribute.
So, as a result, if an entry in the overlays attribute is the function import, it tries to evaluate import self, where self is a set, and the import ends up forcing the __toString attribute, and in order to determine if there is in fact a __toString attribute it needs to evaluate the overlays, which ends up recursing right back to the import.