Gravity feed - it will feed until both tanks are level, so yes it will over-fill a tank in stock location. You should set this up with dual fills and only put a transfer pump in place if you see a need to transfer fuel between the tanks, but with switching valves you probably will never need to. Or, if you plan to use the top tank for fueling other toys you'll have a pump set up anyway.
For my 2-tank veg system I have a 2nd tank in the left frame rail, I believe its 18 gallon. My valves all switch with one rocker on the dash, changing feed and return lines before the lift pump. And yes, if a valve fails you'll see the level rise in one of the tanks! I wanted a 2nd fuel gauge so the stock gauge is diesel level in the 18 gallon tank, and on the A-pillar I have a gauge for the stock 42 gallon tank that holds veg.