I know what he is referring to. I do not know Sludge, but AGS works exactly like Banbury describes.
In AGS, the objects in the foreground that are actually just parts of the background image, can be defined as "walkbehinds". In SCI or AGI, these are referred to as "Priorities", since that's what they were supposedly called at Sierra originally. Defining a walkbehind is basically painting it over with a walk-behind color, and setting its base line (actor feet below the line, is drawn in front of 'object', actor feet above the line, then actor is behind).
HOWEVER -- the walk-behind color has a tendency of getting 'in the way' of the object, so to speak, when you draw on it, thus making it impossible to know if your area is too big for the object. So -- drawing around it is actually a MUCH MUCH better solution.
Scarpia