Why do albums show as downlaoded?

I've got my entire library on my Mac which has been ripped from CD is a lossless format. I've imported the files into the Music app and the file locations are correct. However all the albums are marked as "downloaded" in the Music app.

Why is this? When I play them is Music playing the songs from the lossless files or some inferior version from the Apple catalogue? I use music in the cloud if that makes any difference. I'm only talking about playing music on my Mac. I realise that music played on an iOS device will not be the lossless version.