I have receive an assortment of sample plastisol transfers from Silver Mountain, and some of them have over-lapped colors and some have separated colors. I would think that the separated colors would be better, but I have to test all these still.
For example, lets say you have a yellow smiley face with black eyes and mouth. Since black is so opaque I would think that you would not have to separate the colors, and the black could be a layer over the yellow. But what if you have a black smiley face with yellow eyes and mouth? Is the yellow opaque enough, or would the black be punched out so the yellow is it's own layer? That's how I'm designing mine so far. No layers, but it is more work to do that.