I'm having a very similar issue to this. Here's a link to my problem:https://community.esri.com/message/823748-custom-overlays-arcmap
Wish there was some better information about how to troubleshoot custom overlay issues!
Hi Stephanie - I've got a thread link here that shows me going through the steps to get the custom overlay grid working. https://community.esri.com/thread/226974-custom-overlays-arcmap
Hope this helps!