What is the difference between paired end reads and overlapping reads, after reading around I am struggling to find an answer as to what overlapping reads actually are. From what I can see they just seem to be another term for paired end reads but I feel this must be wrong or I would have found somewhere stating this?

Secondly, why merge overlapping reads prior to assembly?

Any help would be appriciated :)
well, overlapping reads are a "special case" of paired end reads.

Just as the word say they overlap each other (while in normal cases that should not be). It's actually all linked to the fragment/insert size of your library and the read length sequencing mode you execute.

eg. say your insert is 200bp and you sequence 150bp PE reads, those reads will overlap by 50-100 bases (== overlapping reads), if for the same library you do 75bp PE sequencing they will not overlap. 

<p><img alt="" src="http://www.frontiersin.org/files/Articles/77572/fgene-05-00005-HTML/image_m/fgene-05-00005-g001.jpg" style="height:367px; width:892px" /></p>

looking at the image above, if the inner distance becomes negative, the reads will overlap

In some cases (eg. Assembly, amplicon sequencing, ... ) it's advantageous to have overlapping reads as you will end up with longer sequences which you know form a single biological entity