What does ""Your permission level does not allow you to overwrite this report."" mean?

In the Role-based settings, there's an option on the 1st tab (Permissions) for each Role for Save Common Reports. If that is unchecked, it means the users can only create personal reports which is, I think, what you are after. If it is checked, they can mess with your common "template" reports and overwrite them or create new ones.