After 2 hours I still can not get the game running despite following all the instructions. The game starts up, but than my screen exists out of fullscreen and it runs in the background and will not allow me to tab back into it. I have tried forcing the game to run in windowed mode as well but it does not work.

That being said, do I need to play Overseer to enjoy Tesla Effect or can I skip it? I want to continue onwards but if I can't than it was a good run as is.

Overseer is basically a re-telling of Mean Streets. The end of Overseer dovetails directly into Tesla Effect (which TE recaps upon start) - so you are safe with skipping Overseer for now. That said, Poisoned Pawn is still in development which re-makes Overseer for modern machines - so you should be able to re-visit it upon release.