What happens when wifi channels overlap?

There is no “intelligently”, if you have 2 networks on the same channel or on channel that overlaps this make interference between signal of different network. If others network are quite far there will be low interference and it will still work almost correctly but if the different network are too close interference will be high and you will get slower throughput and higher packet loss.

It’s better to have a network on channel 5 and one on channel 6 than both on the same channel, this will reduce interference

Usage of channel 1, 6, 11 and 14 (14 is not allowed in most countries) or 2, 7, 12 or 3, 8, 13 or 4, 9 or 5, 10 guarantee no interference but if you need more channel because of channel used by neighborhood using 3/8 or 4/9 with 1, 6, 11, (14) is “better” than adding 5/10 or 2/7

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