How can I make a CSS glass/blur effect work for an overlay?

Question

For a more simple and up to date answer:

backdrop-filter: blur(6px);

Note browser support is not perfect but in most cases a blur would be non essential.

Here is an example that uses svg filter.

The idea is to use an svg element with height same as the #overlay and apply the feGaussianblur filter on it. This filter is applied on an svg image element. To give it an extruded effect, you could use a box-shadow at the bottom of the overlay.

Browser Support for svg filters.

Demo on Codepen

body {
  background: #222222;
}
#container {
  position: relative;
  width: 450px;
  margin: 0 auto;
}
img {
  height: 300px;
}
#overlay {
  position: absolute;
  left: 0;
  top: 0;
  width: 100%;
  z-index: 1;
  color: rgba(130, 130, 130, 0.5);
  font-size: 50px;
  text-align: center;
  line-height: 100px;
  box-shadow: 0 3px 5px rgba(0, 0, 0, 0.3);
}

<div id="container">
  <img src="http://lorempixel.com/450/300/sports" />
  <div id="overlay">WET</div>
  <svg width="450" height="100" viewBox="0 0 450 100" style="position: absolute; top: 0;">
    <defs>
      <filter id="blur">
        <feGaussianBlur in="SourceGraphic" stdDeviation="3" />
      </filter>
    </defs>
    <image filter="url(#blur)" xlink:href="http://lorempixel.com/450/300/sports" x="0" y="0" height="300px" width="450px" />
  </svg>
</div>

I was able to piece together information from everyone here and further Googling, and I came up with the following which works in Chrome and Firefox: http://jsfiddle.net/xtbmpcsu/. I'm still working on making this work for IE and Opera.

The key is putting the content inside of the div to which the filter is applied:

body {
    background: #300000;
    background: linear-gradient(45deg, #300000, #000000, #300000, #000000);
    color: white;
}
#mask {
    position: absolute;
    left: 0;
    top: 0;
    right: 0;
    bottom: 0;
    background-color: black;
    opacity: 0.5;
}
img {
    filter: blur(10px);
    -webkit-filter: blur(10px);
    -moz-filter: blur(10px);
  -o-filter: blur(10px);
  -ms-filter: blur(10px);
    position: absolute;
    left: 100px;
    top: 100px;
    height: 300px;
    width: auto;
}

<div id="mask">
    <p>Lorem ipsum ...</p>
    <img src="http://www.byui.edu/images/agriculture-life-sciences/flower.jpg" />
</div>

So mask has the filters applied. Also, note the use of url() for a filter with an <svg> tag for the value -- that idea came from http://codepen.io/AmeliaBR/pen/xGuBr. If you happen to minify your CSS, you might need to replace any spaces in the SVG filter markup with "%20".

So now, everything inside the mask div is blurred.

background: rgba(255,255,255,0.5);
backdrop-filter: blur(5px);

Instead of adding another blur background to your content, you can use backdrop-filter. FYI IE 11 and Firefox may not support it. Check caniuse.

Demo:

header {
  position: fixed;
  width: 100%;
  padding: 10px;
  background: rgba(255,255,255,0.5);
  backdrop-filter: blur(5px);
}
body {
  margin: 0;
}

<header>
  Header
</header>
<div>
  <img src="https://dummyimage.com/600x400/000/fff" />
  <img src="https://dummyimage.com/600x400/000/fff" />
  <img src="https://dummyimage.com/600x400/000/fff" />
</div>

If you're looking for a reliable cross-browser approach today, you won't find a great one. The best option you have is to create two images (this could be automated in some environments), and arrange them such that one overlays the other. I've created a simple example below:

<figure class="js">
    <img src="http://i.imgur.com/3oenmve.png" />
    <img src="http://i.imgur.com/3oenmve.png?1" class="blur" />
</figure>

figure.js {
    position: relative;
    width: 250px; height: 250px;
}

figure.js .blur {
    top: 0; left: 0;
    position: absolute;
    clip: rect( 0, 250px, 125px, 0 );
}

Though effective, even this approach isn't necessarily ideal. That being said, it does yield the desired result.