How to solve Unable to copy files into iCloud Drive due to limited space on MacBook Pro

Hello, Peony!

Thanks for reaching out to the Apple Support Communities! It sounds like you are needing to transfer files to iCLoud and getting an error message. Optimizing the storage is a great step! Please use the steps in this article to Transfer your data to your new MacBook Pro. Even though the steps are not specifically for the issue you're having and this is not a new Mac, the steps in this section are helpful:

"Copy files from a USB storage device: 

Connect the storage device to your MacBook Pro using a USB-C to USB Adapter (see MacBook Pro accessories). Then drag files from the storage device to your MacBook Pro."

With optimizing Mac storage, these files will move to iCloud when dragged from your Mac to iCloud Drive.

Let us know the results and have a wonderful day!

You can only do it by moving small amounts of files at once to iCloud Drive.

After dragging the files to iCloud Drive ctrl-click the files or folders on iCloud Drive and use the command "Remove Download", to remove the local shadow copy to free storage on your Mac. Optimise Storage should help to free storage, but it will not remove the most recently used files. So do it yourself.

You wrote " I need to upload about 1TB of data to my iCloud drive so they can be backed up." This may be a misunderstanding. Storing files on iCloud Drive will only be a backup, if the copies on iCloud are additional copies of the files and you are not using them. Are you keeping the original files as the working copies on an external volume and want the iCloud copy as an additional safety copy or are you planning to work with the files on iCloud Drive?