I generally use Aileen's clear tacky glue. Just put small drops in the area I want the glue, then spread it around with my finger. I do try to keep it away from the edges of the frets, and keep the glue thin. Once the overlay is in position, I will use a pin nailer to secure it from the back, if the wood is thick enough to keep the nails from going all the way through. Otherwise, I don't bother with the pin nails. The nails are just in case the glue should fail, so I only use a few around the edges. I have some 3/8" pin nails, so most of my projects are 1/2" finished thickness.
Pin nails are also good for reinforcing butt and miter joints in thin material.
Tom