I am searching for a way to overlay an image on an existing image.
e.g:
+
You can do this using GD library. There is function to "merge" images called imagecopymerge.
Here is a very simple example how to merge images:
<?php
header('Content-Type: image/jpeg');
$bg = imagecreatefromjpeg('background.jpg');
$img = imagecreatefromjpeg('image.jpg');
imagecopymerge($bg, $img, 0, 0, 0, 0, imagesx($bg), imagesy($bg), 75);
imagejpeg($bg, null, 100);
?>