When changing the transmission fluid, setting it to the proper level is important. Overfilling a transmission's fluid can have just as many negative effects as under filling the transmission fluid.
When the fluid is overfilled, too much hydraulic pressure is created. This excessive pressure can lead to very hard shifting of the clutches inside the transmission. The slamming together can cause severe damage to the clutches, thereby causing the transmission to stop working.
When there is too much pressure, the transmission can seep around the gaskets and start to leak. Even worse, it can completely blow out a seal, resulting in extensive repairs being needed.
The more fluid added to the transmission the harder the front pump has to work to pump the fluid through the transmission cooler. This slowing of the flow leads to the transmission overheating, and overheating leads to eventual transmission failure.