In practice
An extreme reading says the recent move has been unusually one-sided. In a ranging market that is useful: oversold readings near the bottom of the range and overbought readings near the top often come before a move back to the middle.
In a trend, traders read the same readings differently: an overbought reading confirms strength, and the pullbacks that reset the oscillator are the buying opportunities.
What to watch for
Overbought does not mean the market is about to fall. A strong uptrend can stay overbought for weeks, and selling it for that reason alone is trading against momentum.