When a sequence detector finds its pattern, what happens to those bits? In overlapping detection they stay available: the end of one match can be the start of the next.
Count 11 in 1, 1, 1, 1 by sliding a two-bit window one place at a time: positions 1–2, 2–3 and 3–4 all match. Three matches.
In the machine, this only affects the arrow taken at a match. Instead of going back to "nothing", it goes to the state for the longest ending of the matched string that is still a start of the pattern. That's just the suffix rule applied to the completing arrow.
- Mealy 010: the match arrow goes to "seen 0", since the final 0 can start the next 010.
- Mealy 110: the match arrow goes to "nothing", because no ending of 110 starts 110. For this pattern, overlapping and non-overlapping machines happen to be identical.
Overlapping is the usual default in hardware, because a real bit stream doesn't reset itself after a match.