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Android has long allowed developers to draw on top of other apps and the system UI. This is how Twilight adjusts the color of the display, and there are other apps that overlay things on your status bar. A change to the way Android O handles overlays could break features of these apps, rendering some of them essentially useless.
As explained by developer James Fenn, whose app Status is affected, Google is deprecating TYPE_SYSTEM_OVERLAY for developers. In its place is TYPE_APPLICATION_OVERLAY. The functionality is largely the same, except apps can't draw on top of the system UI. That means the status bar, lock screen, keyboard, and any other system components that happen to assert themselves will be on top of the overlay. This change applies to all apps running on O, not just those targeted at the new SDK level.
The impact will be minimal, though probably still somewhat annoying for an app like Twilight. You can filter most of the screen, with the exception of the status bar. For an app that exists to overlay the status bar, this may be the end of the line. You can see what happens to Status at the top of the post (see below for what it's supposed to do). It can't draw over top of the system status bar, so you end up with a jumbled mess.
Fenn suggests he might have to discontinue Status on newer versions of Android, and I wouldn't be surprised if other developers are thinking the same thing. It's not likely Google will change its mind, either. A Googler has responded to the request on the issue tracker to say this is the intended behavior.
- Android Developers