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It's only partialy true that a 74 minute CD can only hold 650 MB and a 80 minutes CD 700 MB. This is only the case for Mode 1 data.
CDs were invented by Philips and Sony in 1982 to store digital audio data - high quality music. It was never meant to be used for data. 
Philips recorded the audio data at a sample rate of 44.1 kHz. That means that every 1/44,100th of a second the analog audio signal is read - "sampled". These samples are stored as 16 bit digital data. Since a CD is stereo there are 2 channels. That gives a bit rate of:

(44,100 Hz) x 16 bit x 2 channels = 1,411,200 bits/sec

1 byte exist out of 8 bits thus:

1,441,200 / 8 = 176,400 bytes/sec

By convention there are 75 frames (also called blocks) in a second what makes that 1 block is:

176,400 / 75 = 2,352 bytes

1 block = 2,352 bytes
1 second = 75 blocks (frames)
1 minute = 60 seconds
1 MB = 1,024 kB
1 kB = 1,024 bytes

Using the above values it's easy to calculate the size of a CD-DA (CD Digital Audio):

74 minutes (CD-DA) = 74 x 60 x 75 = 333,000 blocks
80 minutes (CD-DA) = 80 x 60 x 75 = 360,000 blocks

74 minutes (CD-DA) = 333,000 x 2,352 = 783,216,000 bytes = 746.9 MB
80 minutes (CD-DA) = 360,000 x 2,352 = 846,720,000 bytes = 807.5 MB

And what do you notice? That there's way more than 650 MB storage space on 74 mintes CD! This is called the Red Book standard for CD-DA.

So why can't data CDs contain that much data? The answer's easy. Audio CDs don't have advanced error correction. If the CD player reads a small uncorrected error you probably won't even hear it. That's because our ears aren't perfect. However a few wrong bits in a program makes the program doesn't work right anymore. Thus additional error correction for data CDs was necessary when Philips and Sony set the Yellow Book standard for data storage on CD (CD-ROM) in 1985. Instead of 2,352 bytes / block available for data CD-ROM Mode 1 uses only 2,048 out of 2,352 for data. The left bytes are for synchronisation, header and especially the error correction. Thus:

1 block = 2,048 bytes

74 minutes (CD-ROM Mode 1) = 333,000 x 2,048 = 681,984,000 bytes = 650.4 MB
80 minutes (CD-ROM Mode 1) = 360,000 x 2,048 = 737,280,000 bytes = 703.1 MB

Since Mode 1 is the most used format for data soon the idea came that a 74 minutes CD could only contain 650 MB. But they forgot about Mode 2! While mode 1 is for computer data, Mode 2 was meant for compressed music, video or graphical data. These 3 applications don't require error correction as good as with real computer data. That's why the error correction was reduced to gain disc space:

1 block = 2,324 bytes

74 minutes (CD-ROM Mode 2) = 333,000 x 2,324 = 773,892,000 bytes = 738.0 MB
80 minutes (CD-ROM Mode 2) = 360,000 x 2,324 = 836,640,000 bytes = 797.9 MB

Now, it's exactly this Mode 2 format that's being used very often on game CDs. That's why the harddisk images often exceed the "magical 650 MB limit".

Overburning is the possibility to burn more than 74 minutes on a regular 74 minutes disc. How is that possible? A blank CD-R contains a pre-groove, which is used for calibration and tracking by the writer. On this groove the data will be burned. The length of the pre-groove determines the length of the CD. Normally a CD-R is 74 minutes, but the groove is always a little longer. This allows you to burn more than 74 minutes on a 74 minutes disc. Most discs are capable of holding about 77 minutes. Thus if your burner supports (Plextor, Yamaha, Teac,...) overburning, you can write 77 minutes (sometimes even more) on a regular disc. Overburning may seem a little bit overkill, but if you are planning on copying recent games or audio CDs you might need overburning because some games are made larger than 74 minutes as a kind of copy protection. Note that some CD readers have problems reading overburned discs (but I never had any problem with it). Anyway with the low prices of 80 minutes media overburning isn't really very important anymore.

80 minutes CDs support: Since many prerecorded CDs are larger than 74 minutes there are also 80 minutes CDs available. Are this certified overburnable discs? No, a 80 minutes disc is not overburned (but can also be overburned up to 83 minutes!). The pre-groove is simply wound tighter (thus it's longer). An often made mistake is thinking that a burner capable of writing 80 minutes discs can also overburn or vice versa. Both are not related to each other.
80 minute CD-R's can be written by almost any CD-Writer, but there are a few CD-Writer manufacturers (like HP & Sony) who say that they do NOT support 80 minutes CD-R's as these CD-R's do not comply to the CD Red-Book standard.  It is possible that the CD-Writers made by these manufacturers work with 80 minutes CD-R's but it most cases it won't. The only way to know it for sure is by writing 700 Mb data to a 80 minutes CD-R and then comparing it with the CD contents when the CD was written correctly. For example the HP8100i & Sony CRX-100 CD-Writers will only write a 80 minutes CD-R up to 78:16 minutes. As the 80 Minutes CD-R's are now widely available CD-Writer manufacturers will be forced to support them.