You show a significant lack of understanding of how iCloud actually works, my dear friend, Lawrence Finch.
What you say about iCloud Storage vs. Local (i.e. iPhone storage) has some appearance of truth, but it is far more appearance than actual truth.
The Storage you have obtained for iCloud is separate storage from your Local Storage (whether iDevice or Mac).
You should know this. (I'm sure you do. Don't you?)
Try this experiment:
- Backup your iDevice or Mac.
- Place some key file on iCloud Storage, somewhere, that is not part of your backup.
- Wipe your iDevice or Mac and Restore.
- Check the iCloud location for your file.
(You can do this with a newly created Apple ID, that is not used on any other iDevice or Mac, if you think it was "saved" on some other iDevice or Mac.)
Another simple check is to look at the distinction between files that are on iCloud, but not on your device:
- Yes. "add something to iCloud" and it will appear on your device, but with a "Cloud" image (if viewed within the Mac Finder or the Files App): the file will actually be downloaded from iCloud before it will be on your iDevice. (Cached)
- Yes. "If you delete something from an iPhone it [appears to be] deleted from iCloud." Actually, the delete command, from your Mac or iDevice, will simply move the file, on iCloud Storage, to the "Recently Deleted" portion of iCloud Storage. It hasn't actually been deleted—permanently removed from iCloud Storage—until you "empty the Trash", such as deleting it from the "Recently Deleted" folder. (This is similar to what will happen if you delete a Local file: it is simply moved to your local "Recently Deleted" folder. However, all "Recently Deleted" folders are "viewed" as "one" on your iDevice. Much the same as the "Trash" folder on Macs.)
On the other hand, if you add a file to your Local Storage, it will not appear on your iCloud. (You should consider this to be trivially true.)
Your last statement is the most blatant illustration of your misconception of how iCloud Storage works:
That does not mean that iCloud needs as much storage as the iPhone holds, but that is primarily because you can’t sync music and videos to iCloud.
It's as if you think iCloud Storage is like some "File Share" system, that uses the combined storage of the iDevices and Macs, using a given Apple ID, as the "cloud storage".
(That could actually be done, but should be significantly less expensive for the users, since it is using their own storage, rather than Apple's or Google's or whatever. However, if your devices are destroyed, those files will be gone, unlike iCloud Storage.)
As another "witness" to what I have been saying, go to Settings->General->i[Device] Storage->iCloud Drive, and read what it states in the "fine print" at the bottom:
Your most recently accessed files are downloaded to this device for quick access. The original files remain safely stored in iCloud.