As per your question - So does 'Photos' in all these. contexts related to iCloud actually only mean 'Photos taken on iPhone'?
No , not necessary see the article https://support.apple.com/en-in/guide/iphone/iphbfeb468fc/ios
Use My Photo Stream with the Photos app to view recent photos on iPhone, iPad, or iPod touch. Automatically store up to 1000 images for 30 days without using iCloud storage space or iCloud Photos.
My Photo Stream automatically uploads your most recent photos to iCloud, so you can see them on devices that aren’t using iCloud Photos. (My Photo Stream doesn’t upload Live Photos or videos.) You must be signed in on all devices using the same Apple ID.
For another query - If so, what can I do if I want to have everything contained in my 'Pictures' folder on my Mac also backed up in iCloud .
See these articles https://support.apple.com/en-in/HT204264
https://support.apple.com/en-in/guide/photos/pht5156cc968/4.0/mac/10.14
Select the tickbox to turn on iCloud Photos.
- Download Originals to this Mac: To store the original, full-resolution photos both on on your Mac and in iCloud, select this option.
The last query - I have my Documents and Desktop folders in iCloud. Would I have to move my 'Pictures' folder into my 'Documents' folder?
No , the pictures folder are by default , when you click on finder > Go > your user name > pictures .
Also the desktops and documents folders are in iCloud.com as you have turned on iCloud Drive and desktops and documents box is checked see the article https://support.apple.com/en-in/guide/mac-help/mchle5a61431/10.14/mac/10.14
You can open finder preferences > in the sidebar section > check mark pictures box it will be visible in finder > favourites .