Thats a cool algorithm!! I couldnt find resources on how it might be used to compute distance functions (though it seems like it can). It seems to be for approximating voronoi diagrams.
The two problems are highly related, which is why it can do both. At the end of the algorithm, you have a per-pixel assignment of the (approximately) closest seed pixel. If you want a voronoi diagram, then you color each pixel according to the identify of its seed pixel. If you want a distance function, then you color it with the distance to that pixel.