Overlook it, it's not important; you're quite mistaken. This colloquial imperative is used in a variety of ways. For example, in
Thanks so much for helping-Forget it, it was nothing, it is a substitute for "don't mention it" or
you're welcome; in
Stop counting the change-forget it! it means "stop doing something unimportant" in
You think assembling this swingset was easy-forget it! it means "it was not at all easy"; and in
Forget it-you'll never understand this theorem it means that the possibility of your understanding it is hopeless. [c. 1900]