Hello Jake,
Thanks for getting back to us on this and confirming Optimized iPhone Storage is on. Keep in mind, this feature can take time to load all of your photos to the iCloud. Make sure to stay connected to power and Wi-Fi while this process completes. Also to confirm, do you have Download and Keep Originals turned on?
iCloud Photos is a way of keeping all of your devices synced together with photos. Any changes on one device will affect the other. This article has more information: Set up and use iCloud Photos
"iCloud Photos automatically keeps every photo and video you take in iCloud, so you can access your library from any device, anytime you want. Any changes you make to your collection on one device change on your other devices too.
Back up your photos and videos
When you turn on iCloud Photos, your photos and videos automatically upload to iCloud. They're not duplicated in your iCloud backup, so you should keep backup copies of your library. You can download your photos and videos from iCloud.com to your computer and store them as a separate library, transfer them to another computer with Image Capture or Photos, or store them on a separate drive.
If you're on a device with iOS 11 or later or macOS High Sierra or later, the photos and videos you take are in HEIF and HEVC format. These formats use less storage, with the same quality."
For your iPhone Storage issue, have you had a chance to review this article? How to check the storage on your iPhone, iPad, and iPod touch
Best regards!