Hi SehlMan,
When you select the 'Free up space' option in the iCloud Photos folder and you see the cloud icon next to the filename in File Explorer, it is no longer using local storage on your PC but is still stored in iCloud, therefore freeing up local storage on your PC. If you delete these pictures in this area, they will be removed from iCloud and all your devices.
If you no longer want to sync iCloud Photos with just your PC, open iCloud for Windows, select 'Options' next to Photos, and then deselect iCloud Photos. This will make it so your photos are still stored in iCloud but will no longer be synced with this Windows PC.
If you are trying to make more available storage in iCloud, this article walks you through how to do this: Manage your iCloud storage
For further assistance, Apple Support would be the best equipped to help. Contact them using the links we previously sent over or by calling the phone number most applicable to you from here: Contact Apple for support and service
Best regards.