Why can't I assign a typescript generic type to a union of that type?

This leaves me at a bit of a loss: Shouldn't readonly Column[] be assiganble to readonly Column<Adult | Child>[]? As far as I can see, it would be a straight subset, so what is going wrong here?

You are absolutely right. It should be assignable under normal circumstances.

type Adult = {
  tag: 'Adult',
  name: string,
  age: number
}

type Child = {
  tag: 'Child',
  school: number
}

let adult: Adult[] = []
let both: Array<Child | Adult> = []

both = adult // ok,
adult = both // error, as expected

However, this is not true with function arguments. Spoiler: contravariance.

let adultFn = (arg: Adult[]) => { }
let bothFn = (arg: Array<Child | Adult>) => { }

bothFn = adultFn // error
adultFn = bothFn // ok

adult is no more assignable to bothFn. The arraw of inheritance change its way in an opposite direction.

Let's make it more closer to your example:

type Adult = {
  tag: 'Adult',
  name: string,
  age: number
}

type Child = {
  tag: 'Child',
  school: number
}

type Options<T> = {
  columns: T[],
  handler: (arg: T) => void
}

let adult: Adult[] | Child[] = []

let hook = <T,>(arg: Options<T>) => { }

// same error as you have
hook<Adult | Child>({ columns: adult })

As you ,ight have noticed, this error is same as you have. Now, try to remove handler: (arg: T) => void from Options<T> type. Error will disapear. Why ? Because of contravariance. This is whats make your code more safer. useTable hook uses under the hood UseTableOptions type, where provided generic D is used in a contravarian position - in a position of argument.

type UseTableOptions<D extends object> = {
    columns: ReadonlyArray<Column<D>>;
    data: readonly D[];
} & Partial<{
    initialState: Partial<TableState<D>>;
    stateReducer: (newState: TableState<D>, action: ActionType, previousState: TableState<D>, instance?: TableInstance<D>) => TableState<D>;
    useControlledState: (state: TableState<D>, meta: Meta<D>) => TableState<D>;
    defaultColumn: Partial<Column<D>>;
    getSubRows: (originalRow: D, relativeIndex: number) => D[];
    getRowId: (originalRow: D, relativeIndex: number, parent?: Row<D>) => string;
    autoResetHiddenColumns: boolean;
}>

Please see another one simplified example:

type Options<T> = {
  handler: (arg: T) => void
}

type SuperType = string;
type SubType = 'hello'

declare let superType: SuperType;
declare let subType: SubType;

superType = subType // ok
subType = superType // error


let superTypeObj: Options<SuperType> = {
  handler: (arg) => { }
}


let subTypeObj: Options<SubType> = {
  handler: (arg) => { }
}

// opposite direction
superTypeObj = subTypeObj // error
subTypeObj = superTypeObj // ok

Playground

More about *-variance you can find here and here