What does over filling do?
Transmission oil does not typically cover the gears, rather it is splashed up on them and drains back down to constantly wash them. Overfilling causes the oil to aerate, rather than splash, which reduces its effectiveness.
Isn't there more volume in the engine (and the transmission for oil than the oil required?
Yes, and this is why many/most manufacturers suggest you top the transmission with oil, for winter storage. This covers the exposed parts of the gear.
Although I don't service my car... done by dealer service department... I don't recall any regular oil changes for the transmission. Tranny doesn't seem to consume oil...(the way engine does)... Why change it? Does it become contaminated? What is the grade of tranny oil determined by?
Not sure if your questions are about your car or boat. I'm only referring to boats, which have primitive transmissions, compared to automobiles. As the oil washes down the gears and plates, it removes wear. After a while, you can see fine metal in the oil, if you wipe the dipstick on a white cloth. There is typically no filter to remove this metal in our small gears. Most recommend changing at least annually.
Oil also has anti-corrosion additives that dissipate or decay, with simply the passage of time.