What James told you is generally correct, with one exception: MESH
Mesh scenery do not respect the normal layering order in the Scenery Library. Instead, the most detailed mesh will always shown, regardless of its order in the library.
The problems around the airports are quite typical for 3rd party meshes, because the Flight sim engine doesn't really support elevation changes over an airport property so, the airport has to be flattened at the official published altitude. This might create a problem with such a large area, like KORD when it connects to a 3rd party mesh that hasn't been processed to take this into account.
The default mesh from Microsoft has been smoothed out all around the airports so, problems like this don't happen. I hear that some of the latest commericial meshes has added this pre-processing as well, but it might not be present in the freeware mesh you are using.
Note that, this would happen exactly the same if you had only the default KORD installed. Basically, an addon mesh that hasn't been smoothed out to match with an airport, will create such problems at every airport. Of course, it's more noticeable with the largest ones, because the chance of an elevation change are higher over a larger area.
I hear that the upcoming FS Global 2010 will come with a tool that will allow users to fix the issue themselves at specific airports.
However, the general rule that an airport should be always placed on top of larger coverage areas, it's usually good to follow. That's why our installer will put the scenery on top of everything else.