I suppose there has been a misunderstanding about your question. Within 'knoppix-data.inf' there is of course only the information about the overlay partition (not overlay file). How to build this file you can see in '/usr/bin/flash-knoppix(2)'.

How Knoppix interprets this file during boot, you can see within the "init"-file of the minirt.gz in the function mountdata() and there starting at the line "inf) # Contain partition information ...".

For simplicity reason Knoppix only supports "overlay partition" on the 2nd partition with partitionname KNOPPIX-DATA and ReiserFS. If you want to change this behaviour, you have to do many hacks by yourself in this two scriptfiles.