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it's a good way to test cuts without moving the whole timeline.
Multiple video on the screen is another reason.
Layered video, where the top frame has an effect and the opacity is lowered so it blends with a copy of the video under it.
Custom transitions using overlapping clips.
Sometimes it's quicker to to insert video by putting it on the above layer.
There's no rule that you have to edit using one track, sometimes it's easier just to lay another video on track two. Especially if it's an insert.
Imagine muti-camera but replaced with multi-takes you shot.
There's probably more.
Chapters 10 & 14 in the CS3 CIB give a few examples of why you would use multiple layers.
Here's an example...
Video Track 1 - Clip (main program)
Video Track 2 - Title (lower third graphics)
Video Track 3 - Title (lower third text)
Video Track 4 - Over the shoulder graphic (think "news report")
Video Track 5 - Bug/logo lower left corner
Audio Track 1 - Clip (main program)
Audio Track 2 - Music (underneath)
Audio Track 3 - Sound effects (whoosh! zing! bang!)
Audio Track 4 - Audio commentary (director, talent)
Just something to get your brain going. I've never used more than 10-15 video layers simultaneously (doing green screen work, titles, mattes, etc), and never more than about 6-10 audio tracks. But that's just me....many people need more than that to accomplish whatever they're doing.
Another thought...even though you "can" do transitions and cuts all on one track for most simple projects, some people prefer to use the track numbers as an organizational structure. Put all your cuts for scene 1 on track 1, all your cuts for scene 2 on track 2, and so on. This can be very useful for scanning the timeline and looking for specific changes in the overall storyline (whereas a single, long track would require another system of organization...either sequence markers or perhaps pure memorization).
Hope this helps!
You saved me a lot of typing. To add to your example, also the footage and the Track Matte for it, that shows as the "program" playing in the TV in the background.