That makes some sense, but it is a very niche/rare case, compared to this concept becoming almost a world-wide HR dogma.
That seems to be its only use now, but I still do not understand how is this useful or even reasonable, even in this case where it is “just an excuse”. There are so many other useful and factual things you could claim to not hire someone. After all, you do not owe anyone a job, it is your decision to hire candidate A and not candidate B. Why not be professional about it and actually tell them why?
Yes, that is the definition of the term, but that’s the crux of my question. What does that mean practically and why is it pertinent to not hiring someone?
Supposing that I have a PhD in chemistry, for example, and I no longer want to work in research or a lab or think that a change of pace to something easier would be good for my health and I apply for a teaching position at a highschool and they tell you “sorry, we won’t hire you because you are overqualified”. That’s MY problem and decision.
If I applied for this job this means three things:
a) I want this position
b) I probably know that I can do this job easily, exactly because I am overqualified
c) I would expect that the employer would jump at the opportunity to hire an overqulified person, while paying the wages for a lower earning position.
This is like going to eat to a small restaurant and you find Gordon Ramsay is cooking there today, but the prices are the same.
Any reasonable person would go:
“Hey, we have a great chance to enjoy a meal made by Gordon Ramsay and not pay extra. How lucky we are!”
However, HR would go:
“Gordon Ramsay is overqualified for this restaurant, we will have to go eat elsewhere and pay the same price for worse food.”
Make that make sense. 
In any other instance you can think of in the comparison:
Option A has: X quality, Y quantity at Z price
VS
Option B has: double X quality, Y quantity at Z price
Any sane person would choose option B, but, apparently, not HR.
Would you buy furniture made by a master carpenter or an apprentice, if the price was the same?
Would you call a plumber with 25 years of experience to fix your plumbing or an apprentice, if the price was the same?
Would you hire an architect with 25 years of experience to design your house or an apprentice, if the price was the same?
And so forth… anywhere else, being overqualified is a good thing. As it should be.