What is the hook's return type and why does the setter accept both a value and a callback?

const useLocalStorage = <T,>(
  key: string,
  initialValue: T
): [T, (value: T | ((prev: T) => T)) => void] => {
  const [storedValue, setStoredValue] = useState<T>(() => {
    try {
      const item = window.localStorage.getItem(key);
      return item ? (JSON.parse(item) as T) : initialValue;
    } catch {
      return initialValue;
    }
  });

  const setValue = (value: T | ((prev: T) => T)) => {
    const valueToStore = value instanceof Function ? value(storedValue) : value;
    setStoredValue(valueToStore);
    window.localStorage.setItem(key, JSON.stringify(valueToStore));
  };

  return [storedValue, setValue];
};