That's quite a big topic, depending what exactly you want to change.

When mods are installed in Documents, there is a fixed loading order. If there are multiple versions of the same file, the last one loaded is used, so hak > patch hak > override > base game.

Only those haks specified in the module properties list are loaded, bottom to top.

By "file", I mean individual game files, like scripts, models and textures, which may be held in containers like .hak and .bif files, or in the override folder.

I'm less clear what happens with Steam Workshop Items. They have the same folder structure as Documents. At run time, in effect, the folders are merged with the corresponding folders in Documents, but I'm not yet sure which takes priority, or whether conflict management is at file or container level.

Evidently, certain folders, such as override, must be aggregated across all subscribed Items and Documents (otherwise that type of mod wouldn't affect all modules globally).

However, I'm less sure whether that's true of, say, the hak folder, which in principle only needs to be aggregated from the Module Item, Required Items and Documents.

Maybe Beamdog can cast some light.

Bottom line - although there has been no official comment on this, the conventional wisdom in the community is that everything works a lot better if files are moved from the Steam folders to Documents.