My application has a \"photobooth\" feature which will allow the user to take a picture with the camera and at the same time show an overlay image on top of the camera view. Af
I think this is a question of how you manipulate your overlays. You can crop it according to the captured image size and resize it to fit, preserving its ratio. You can place the overlay, by comparing its ratio to the backround ratio, to its optimal position.
I would keep overlays big enough, with a wide border (bleed), to easily size them to an image using filters to draw it with good qaulity. I guess overlays are something which you would design and have transparent parts, like an image of a clown without a face so the user can snap somebody elses face into it?