I haven't tried the perform reset button becuase I'm afraid of corrupting the setup and having to re-flash the firmware. So, is it safe to do? And what would happen if I tried and I don't have squashfs image?
@drsly Just grepping dmesg is sufficient to know whether you are using a squashfs image (and like trendy points out, it's also in the file name of the official OpenWrt images).
Basically, as you can see here, your rootfs is read-only and there is a writeable /overlay partition where OpenWrt settings (and packages you installed e.g.) are stored. A reset will wipe/reformat the overlay. That's all there's to it.
The first time you boot OpenWrt, it will use the hardcoded device settings in the read-only rootfs to configure your device, saving those settings on /overlay. It will do the same after a reset.