I want to highlight a area like on the image below which is taken from Google Maps. Is this possible to accomplish with the current version of their API (v3)? If yes, how?>
You need to know the vertices of the area and create a polygon based on them.
But dashed strokes currently are not supported by polygons, if you require to have a dashed stroke you must create a sequence of polylines with different stroke-colors based on the vertices.
A built-in method to highlight an area currently doesn't exist.