Family consuming excess Family Storage despite having free space on their devices?

iCloud storage is used even when there is free storage on a device. For example if iCloud Backup is turned on in a device it will backup to iCloud no matter how much free storage there is on the device. If iCloud Photos is turned on in a device, it will make a copy of all of the photos and videos on that device in iCloud no matter how much free storage there is on the device. One of the purposes of doing that is to insure that there is a copy available on iCloud in case the device is broken, lost, stolen, etc.

There is no option to restrict how much storage a family member uses on a shared iCloud storage plan. Each family member can use any or all of the available storage.

However, you can opt to not share the iCloud storage plan (even though you are sharing Apple Music). See information in Share iCloud+ with your family - Apple Support

There are numerous possible explanations.

If iCloud Photo Library is enabled, they have the option not to store the full size images on the device itself. That reduces the amount of local storage required and stores the full resolution (larger) image files in iCloud.

If they store documents or data in iCloud, Those documents may not be downloaded to the device itself until needed.

Backups also consume space in iCloud.

That's not how iCloud storage works. It is not an 'overflow' for device storage.

pandi115 wrote:

Ok.. then it is marketing trick of making to buy another new phone..

No. It’s not. It’s up to you and the members of your family to manage storage.