Overhead squats are a tremendous exercise.I think their two major functions are increasing back strength(especially the low back) and increasing hip flexibility.
Dan John, one of the major proponents of overhead squats, has his shot and discus athletes focus on these and their goal is to do bodyweight for fifteen reps.That's some serious strength.
Two good variations of this exercise are 1)bottom-position overhead squats and 2)dumbell overhead squats.On the bottom-position variety, I set up inside the power rack and place a loaded bar on the safety pins at the lowest position I can hit and do singles off the pins.These are extremely difficult.The dumbell variety is also difficult, but really works your balance and stabilizer muscles.