Why would I purchase an Iphone with 512GB storage when I can purchase TB or more storage in icloud?

iPhone storage space is independent from icloud storage space. You need to buy a phone with the most storage space that you can afford. Once you purchase a phone, you can’t add any additional storage space to it.

I don’t believe that you can store music in an iCloud account. See if this helps: What you can do with iCloud storage - Apple Support