Not relevant to tarsnap (and in general something I would be very careful about adding since people often don't realize what's in their environment) but I would say that command line options take priority over the environment and the environment takes priority over all configuration files.
And every configuration that overrides the built-in defaults are reported one by one.
Also, I started to detail how configuration file works in README.md file, under its section now.
Lastly, I decided to fix all of my tools to work on same specs from now on, regardless of the programming language they're written in:
1. Use TOML, and TOML only.
2. Config file overrides the defaults, Command line flags overrides the configuration file.