iCloud, iCloud Drive, and now Optimized Storage in macOS Sierra. How all these function and work together is a bit confusing -- at least for me. Here is an article from the TidBITS Newsletter that offers an explanation of some of these features that may help in your understanding. I don't knowingly use iCloud for anything, and much prefer Dropbox for its simplicity, among other attributes. Apple has gotten too fancy and complex for me in these functions. For example, I just now tried to log into my iCloud account just to see what was in there. Wait! Before I could get in I had to review my security questions and change my Apple password, which I've used for years. Apple, in its wisdom, decided it wasn't strong enough and made me change it before I could log into my iCloud account. Then I have to go into settings on all my other Apple devices (iPads and iPhone) and update my new Apple password. What a pain.
I don't like Apple -- or any other company, for that matter -- deciding what I must use for a password. But that's a complaint for another day, I think. Anyway, read the article, and see what you think about Optimized Storage.