Over-collateralization is explained in full under overcollateralization, the single-word spelling used for the main entry. The hyphenated form is equally common, especially on crypto data sites, and means the same thing.
A loan or token is over-collateralized when the assets pledged against it are worth more than the amount owed. If someone deposits 150 dollars' worth of ether to borrow 100 dollars of stablecoins, the extra 50 dollars is a buffer that protects the lender if the ether price falls. The ratio between the two is closely related to the loan-to-value ratio used in traditional lending.
The practice is central to decentralised finance because protocols usually cannot check a borrower's identity or credit history. Instead, they rely on excess collateral and on automatic liquidation if its value drops below a set threshold. Crypto-backed stablecoins such as Dai keep their peg in the same way. The cost is capital inefficiency: borrowers must lock up more than they receive. In traditional finance, the same idea appears as a credit enhancement in securitization, where a pool of loans larger than the bonds issued against it protects investors.