Out of Storage
why am I out of storage on my iPhone when I am paying for an extra two terabytes of storage in the iCloud
Because cloud storage doesn't increase the amount of storage on your phone. Your phone has a fixed storage size and can't be increased.
If you need more storage on your phone you will need to delete something like apps, photos, videos, etc.
Go here for some tips on how to manage your storage - https://support.apple.com/en-us/HT205703