It's important to understand that the vast majority of the free chlorine is bound to CYA. It just happens to be that FC is easy to measure so that's what pools are tested for. Your pool at 12, or 24 for that matter, has less active chlorine than a well-run institutional indoor pool with no CYA. Active chlorine is commonly referred to as the "harsh" part of the chlorine system. FWIW (I'm no doctor!) I've had eczema all my life and heat and sweat make it flare up, but not the pool. For me, the pool always makes it feel better.
The algae is being attacked by the active chlorine. As it is used up, more active chlorine is released from the CYA. Your overnight loss is telling you that there's algae being eliminated. Algae is a nuisance, but not harmful unless live or dead algae obscures the bottom of the pool, making it unsafe to swim because you can't see a swimmer everywhere in the pool.