A problem is said to have optimal substructure if an optimal solution can be constructed efficiently from optimal solutions of its subproblems. This property is used to determine the usefulness of dynamic programming and greedy algorithms for a problem.

Typically, a greedy algorithm is used to solve a problem with optimal substructure. Otherwise, provided the problem exhibits overlapping subproblems as well, dynamic programming is used.

Example
Consider finding a shortest path for travelling between two cities by car. Such an example is likely to exhibit optimal substructure. That is, if the shortest route from Seattle to Los Angeles passes through Portland and then Sacramento, then the shortest route from Portland to Los Angeles must pass through Sacramento too. That is, the problem of how to get from Portland to Los Angeles is nested inside the problem of how to get from Seattle to Los Angeles.

A problem is said to have overlapping subproblems if the problem can be broken down into subproblems which are reused several times or a recursive algorithm for the problem solves the same subproblem over and over rather than always generating new subproblems.

For example, the problem of computing the Fibonacci sequence exhibits overlapping subproblems. The problem of computing the nth Fibonacci number F(n), can be broken down into the subproblems of computing F(n − 1) and F(n − 2), and then adding the two. The subproblem of computing F(n − 1) can itself be broken down into a subproblem that involves computing F(n − 2). Therefore the computation of F(n − 2) is reused, and the Fibonacci sequence thus exhibits overlapping subproblems.

Another example :-

In above figure, we can see that many subproblems are solved again and again, for example eD(2,2) is called three times. Since same suproblems are called again, this problem has Overlapping Subprolems property.