React - useState - why setTimeout function does not have latest state value?

The function given to setTimeout will get the flag variable from the _onClick function. The _onClick function gets created every render and "stores" the value which the flag variable gets on this render.

function App() {
  const [flag, toggleFlag] = useState(false);
  console.log("App thinks that flag is", flag);

  const _onClick = () => {
    console.log("_onClick thinks that flag is", flag);
    toggleFlag(!flag);

    setTimeout(() => {
      console.log("setTimeout thinks that flag is", flag);
    }, 100);
  };

  return (
    <div className="App">
      <button onClick={_onClick}>{flag ? "true" : "false"}</button>
    </div>
  );
}

Console:

App thinks that flag is false

_onClick thinks that flag is false
App thinks that flag is true
setTimeout thinks that flag is false

_onClick thinks that flag is true
App thinks that flag is false
setTimeout thinks that flag is true

This boils down to how closures work in JavaScript. The function given to setTimeout will get the flag variable from the initial render, since flag is not mutated.

You could instead give a function as argument to toggleFlag. This function will get the correct flag value as argument, and what is returned from this function is what will replace the state.

Example

const { useState } = React;

function App() {
  const [flag, toggleFlag] = useState(false);

  const _onClick = () => {
    toggleFlag(!flag);

    setTimeout(() => {
      toggleFlag(flag => !flag)
    }, 2000);
  };

  return (
    <div className="App">
      <button onClick={_onClick}>{flag ? "true" : "false"}</button>
    </div>
  );
}

ReactDOM.render(<App />, document.getElementById("root"));

<script src="https://unpkg.com/react@16/umd/react.development.js"></script>
<script src="https://unpkg.com/react-dom@16/umd/react-dom.development.js"></script>

<div id="root"></div>