iCloud only using 3/4 of its space while my iPhone storage is full

Device storage and iCloud storage are not the same thing.

Device storage is in flash memory inside your iPhone, and is fixed for the life of the phone. You cannot expand it. A lot of things reside in device storage, including iOS, apps, and local copies of data.

iCloud storage is on Apple's servers. It is for storing backups, and for synchronizing data with other devices. Much of the time, when you synchronize data, copies will exist BOTH in iCloud and on your iPhone, allowing you to get to your data even when your phone does not have an Internet connection (or you aren't letting it use a cellular one).

There is an Optimize iPhone Storage setting that you can use to allow your phone to store low-resolution copies of some photos when device storage runs low.

Manage your photo storage - Apple Support

You could manually copy some of your photos to a place on your Mac OTHER than your system Photos Library; back them up; and then delete the iCloud Photos copies. It's a bit tedious, but possible.

You can even have multiple Photos libraries if you want – one of which is the system Photos Library that gets to synchronize with iCloud; the others of which are strictly local to your Mac. Hold down the Option key when you launch Photos to see the dialog for creating and choosing libraries. Unfortunately, Apple does not provide tools which would let you work with two Photos libraries at once so you could easily move stuff between them.

You'll have to ask Apple why they designed the system the way they did.

My impression is that the system is designed to keep all of your photos on your phone at all times. Even if some of the copies on the phone are only low-resolution versions of the full-resolution photos in iCloud.