I was working with the sponge tool. To use it non-destructively, I created another new layer with a fill of 50% gray and blending mode overlay. But when I brush over any area of the image , there seems to be no effect.Can someone explain why is this happening ?. The sponge tool works perfectly fine on the original layer.
Applying sponge to colorless grey cannot increase nor decreace its saturation. The sponge tries to modify only the active layer.
Photoshop's adjustment layers are the normal way for nondestructive edits. Layer masks are the way to localize their effect, you can paint black to the mask to decrease the affected area or take it back by painting white to the mask.
By having a spare copy of the image layer you can also go back and use destructive tools freely. For safety disable the spare layer when it's not needed.
In theory you can save some storage space if you delete non-modified areas from the adjusted layer copy.