I'm going to assume you're familiar with Redux. If not, there's a brief section on it here.
useReducer allows us to do Redux-style reducers but inside a hook. Here, instead of having a bunch of functions to update our various properties, we have one reducer that handles all the updates based on an action type. This is a preferable approach if you have complex state updates or if you have a situation like this: all of the state updates are very similar so it makes sense to contain all of them in one function.
In this one, we are using hsl color to make it so we have text that is always somewhat readable against its background. I use a very rudimentary algorithm to do and there an algorithm that is better at it, but I wanted to keep it simple. We basically just make sure one color is 180º away in hues and 50% different in lightness (no need to modify saturation). It produces decent but not perfect results.