iCloud Drive is a syncing service and by default keeps a local copy on your Mac drive.
To reduce the space needed on the drive, turn on the Optimize storage option. See the information below from Add your Desktop and Documents files to iCloud Drive - Apple Support
(and note that while the information is in the Desktop and Documents support article, the Optimize option is available even if you are using iCloud Drive without turning on Desktop and Documents option)
Store your files in iCloud and save space on your device
The files that you keep in iCloud Drive use your iCloud storage. And as long as you have enough space in iCloud and on your device, you can store as many files as you like.
If you need more space on your device, iCloud Drive can help. On your Mac, choose Apple menu > System Preferences. Click Apple ID, then click iCloud. On macOS Mojave or earlier, choose Apple menu > System Preferences, then click iCloud. Turn on Optimize Mac Storage. Then your Mac keeps all of your recent files on your computer, but keeps your older ones only in iCloud, ready for you to download when you need them again. If you want to free up more space on your Mac, follow these steps. On your iPhone, iPad, or iPod touch, you can search and browse files from all of your devices and download them only as you need them.
You can also free up space on your device and in iCloud Drive when you delete files. Then go to your Recently Deleted folder in the Files app or on iCloud.com and delete the files there. Before you delete anything, make sure that you back up the files that you still want. When you use iCloud Drive and delete a file on one device, it deletes on your other devices too. iCloud removes the files from every device that you're signed in to with the same Apple ID.