First grow

Yes that seedling is likely overwatered. Somewhat obvious because of how the cotyledon leaves are clawed downwards, and you can see puffiness in its first ‘real’ leaves. It’s too much medium for such a small plant. Starting in a solo cup or rapid rooter cube will be more reliable and help with overwatering because smaller medium dries out faster.

no, they just look small and thats to be expected for a seedling. dampening off causes the base of the seeds stem/truck to shrivel up and collapse under its own weight. I do not see any of that happening here, Good Luck!

Seedlings do not need high humidity or humidity domes, domes just encourage disease, weak growth and you risk cooking them. Plants do not take water in through their leaves, plants just don't work like that...all the water is sucked up via the roots. Your seedling looks normal to me, the cotyledons (small rounded leaflets) fold back to expose the growing tip where the first true leaves will be emerging from in a day or two. Keep her moist, be patient and soon enough you should have a happy seedling.