This is actually kind of a deceptively simple question. The short answer is it's configurable, but I can explain how these pieces work together with an example.
Let's assume we are using Assignee as our resource field. This means that each resource is a single person, so we should set our default Resource Units to 1, this is the number of people. Then because we can assume people will be working on single tasks we can set the Max Units to 1, this is the number of people working on each task at most. Then assume we are using the standard calendar (M-F, 9-5), which uses an 8 hour day. All of these values are defaults so you shouldn't need to make changes, except setting Assignee as the resource (which it looks like you have already done).
This makes the math really easy. It's Resource Units (1) X Max Units (1) X Calendar day (8h). In practice this means if a resource is scheduled for 8 hours a day the resource calculation will show gray as they are NOT over allocated. If the value gets above 8h on any day then it will turn red to show the resource is over allocated.
However if we change any of those values we might have a different threshold. This answer also assumed that we didn't have any changes to the individual resource settings, such as changing the resource units, or limiting capacity in the availability tab of the resource settings.
Please let me know if you have any other questions.
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