I'd describe it as like having a second monitor in your desktop. It's not inherently "over" what I already see or anywhere physical, it's like in a different space. Sometimes it can feel like it's "behind" what I am seeing indeed (i.e. kind of over), but it can vary and I suspect that's just a learned position (I just tried and I can shift the position images 'feel where they are').

I don't see with full fidelity, I suspect that's to save power or limitations of my neural circuitry. But I can definitely see red and see shapes. Yes, it's not exactly like seeing with your eyes and if you pay attention you can sense there's trickery involved (particularly with motion being very low fidelity, kind of low FPS), but it's still definitely an image. It's not that it's a blurred image exactly, more that it only generates some details I am particularly focused at. It can't generate a huge quantity of details for an entire scene in 4K, it's more like it generates a scene in 320p and some minor patches can appear at high res, and often the borders are fuzzy. I can imagine this with my eyes open or closed, but it's easier with eyes closed.

It feels (and probably is?) that it's the same system used for my dreams, but in my dreams it's more like "setup" to simulate my own vision, and the fidelity is increased somewhat.