The "Model is Overloaded" error occurs when the OpenAI API experiences high demand, impacting its ability to deliver prompt and accurate responses. This issue can arise due to increased user traffic, complex requests, hardware limitations, or server maintenance. To manage this, users can implement a wait-and-retry strategy with longer delays, such as a 5-second pause between requests, or use exponential back-off logic to handle repeated failures. Additionally, it's recommended to incorporate error monitoring in production code to track issues, using tools like Rollbar to capture and report exceptions. This involves setting up a monitoring account, integrating the necessary SDK, and configuring the application to log errors for effective troubleshooting.