Why does iCloud Drive use so much storage space on my Mac hard drive?

iCloud Drive keeps a local copy of documents on your Mac. You can potentially reduce the space by turning on Apple menu > System Preferences > Apple ID > Optimize Mac Storage.

Also see the following from Add your Desktop and Documents files to iCloud Drive - Apple Support

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.