The manual control (a pto cable works best for this) only operates the freewheeling clutch in the overdrive unit. When pulled out, it locks the clutch as well as locking out the overdrive. In this mode, it operates the same as the standard 3 speed, with full copression braking available. when pushed in, the freewheeling clutch is unlocked, and withough the overdrive engages, allows the vehicle to coast without using the main clutch. There is a drawback, as there is no compression braking when the freewheel is unlocked at speeds under 28 mph.
The solenoid is what actually engages the overdrive, which is basically a 2 speed planetary style transmission. The solenoid locks the sun gear in the planetary gearset, engaging the overdrive ratio. If setup the way the factory did it, it automatically engages at approximatly 28 mph in any gear (2nd over is a great hillclimber gear).
Here's a shop manual section that explains the operation in depth. The page is from the '55 truck manual, but the operation is the same.
