Linux considers everything to be a file location which can be easy but also complicated. You will never be able to “mount” a device directly, instead you need to give it a mount point. In your case, a command like mount /dev/mmcblk0p1 /mnt/sdcard1
would be what you would use, then you would be able to cd /mnt/sdcard1 and start to see the contents of the device.
With the above knowledge, you can arbitrarily assign a location and (for the most part) won’t have too many issues. The linux community typically mounts devices under /mnt or /media and if you try to mount it as other existing directories you may have some issues.
For the record, I do not work for gl-inet.
Also an article that explains a little more if you are interested.
also also,
If you wanted to use the larger partition for the overlayfs, I would copy all the contents of the current folder to the sd card partition of choice and then reassign the overlay in the mount points.