CSS overflow:hidden with floats

I try to end the confusion:

ul is a block-level element as is the p element (they stretch to 100% of the parent width). That is why per default the p will appear below the ul if no width or display is declared on those elements.

Now in your example the ul contains only floated elements. This makes it collapse to a height of 0px (It still has 100% width though as you can see in the example). The adjacent p will appear to the right of the floated lis because they are considered as normal floated elements.

Now declaring overflow (any value other than visible) establishes a new block formatting context, which makes the ul contains its children. Suddenly the ul "reappears", not having size 0px anymore. The p is getting pushed to the bottom. You could also declare position:absolute to achieve the same "clearing" effect (with the side effect that now the ul is taken out of the normal element flow - the ps will be overlapped by the ul.)

See the example fiddle

If you are into the technical stuff, compare the according paragraphs of the CSS spec:

§10.6.3 Block-level non-replaced elements in normal flow when 'overflow' computes to 'visible'
and
§10.6.7 'Auto' heights for block formatting context roots. (Thanks to BoltClock for digging out the links).

ul{
    list-style-type:none;
    margin:0; padding:0;
    background-color:#dddddd;
    border:2px solid red;
}
li{
    float:left;
}
a{
    display:block;
    width:60px;
    background-color:#555;
    color:white;
}
p{
    margin:0;
    outline:2px dotted blue;
}
#two{
    clear:both;
    overflow:hidden;
}

No overflow:
<ul>
<li><a href="#home">Home</a></li>
<li><a href="#news">News</a></li>
<li><a href="#contact">Contact</a></li>
<li><a href="#about">About</a></li>
</ul>
<p>Notice the collapsed ul - no background-color visible, collapsed border and this paragraph treats the lis as regular floats  </p>
<br>
With overflow: hidden
<ul id="two">
<li><a href="#home">Home</a></li>
<li><a href="#news">News</a></li>
<li><a href="#contact">Contact</a></li>
<li><a href="#about">About</a></li>
</ul>
<p>the ul reappeared - it now contains the child li's - the float is cleared</p>

Setting overflow: hidden on an element causes a new float context to be created, so elements that are floated inside an element that has overflow: hidden applied are cleared.

http://www.w3.org/TR/CSS2/visuren.html#block-formatting