iCloud Drive Ambiguity

When I click on files in iCloud Drive on my iOS devices they display a downloading animation and then the cloud arrow icon disappears from the thumbnail.

This got me concerned that theses files were being stored locally. I could not find anything in the documentation on apple to clarify what exactly is happening when that icon is clicked.

Are these just temporary local files that will have their local storage space re-allocated in the background by the file system?

I have a feeling that this is whats happening since the files are not appearing withing the "On My iPad" location.