What if your Macbook is full? What happens to files in iCloud?

It states that "older files" can be kept in iCloud and not on your computer. I have two computers, an iMac and a 2017 Macbook Air. I'd like to keep some large files in the iCloud drive but that would completely fill up the storage on the Air. How is it determined to maintain space on the Air when the capacity of the iCloud drive is larger than the capacity of the Air?