if documents are stored in icloud are they removed from Mac computer

No. They are synced. That means they exist on iCloud and your computer at the same time, and any changes made to files are reflected in iCloud. So if you delete a file from the Mac it will be deleted from iCloud too.

Sort of. iCloud is a file sync service, which means copies can be cached locally.

The files have to be cached locally to be accessed and used.

If you delete the file from the Mac, it is deleted everywhere.