What is the layering order and what are the effects?

It is the appearance and behavior of tiles, when two different types of tile are placed on adjacent positions.

Red layering above:

Red layering below:

Red merging:

This is the layering order the startup settings adjusts, tiles with higher numbers layer on top of tiles with lower numbers.
Tiles set to the same layering order merge.

Hazard and Dectorio's Painted Refined concrete are set to the same layering order as Refined concrete.

What are excluded entities?

There are two categories of excluded entities.

Entities that never have tiles automatically placed under them:

vehicles
ghost entities
locomotives, wagons, rails, and rail signals
mining-drills
offshore-pumps
spidertrons
trees

Entities for which automatic tile placement is in-game selectable:

belts, underground belts, splitters, and loaders
inserters
small and medium electric poles

The in-game selectable entities play a significant role in the tile layering pattern.