Why did my iPhone storage update in the past after paying for iCloud, but not this time?

It is not possible to buy more storage for an iPhone; it will never have more than it did when you bought it. What you bought is iCloud+ storage that is used for backing up and also for syncing to other devices. Here is an explanation→What's the difference between device storage and iCloud storage? - Apple Support

iCloud+ has 2 independent functions. iCloud backups, and iCloud sync. It’s confusing because they both have the same name prefix. But they have no connection with each other. Go to Settings/[your name]/iCloud. You will see a bunch of switches (with iOS 16 or later also tap Show All). When you turn on a switch that data type will sync to iCloud. If you do this on multiple devices that share an Apple ID the selected data will sync to all of those devices. 

You can also turn on iCloud Backups. This will back up your phone every night if the phone is plugged in, connected to Wi-Fi and locked.

But note that anything that you sync by the first method will be excluded from the iCloud backups.

kyanna116 wrote:

in the past I have paid for iCloud storage and my iPhone storage updated as well

You probably just looked at two different screens – the one showing usage of built-in device storage, and the one showing usage of iCloud storage – without realizing it.

As Mr. Finch says, you cannot buy more device storage. It is what it is for the life of the phone.

If you are using iCloud Photos, and have "Optimize iPhone Storage" turned on, that gives the iPhone permission to substitute low-quality, low-resolution local copies of photos and videos for full-size copies on an automatic and as-needed basis. The idea is that the phone can download full-size originals, on demand, later, from iCloud. (Here we assume that you have sufficient iCloud or iCloud+ storage to hold everything in your iCloud Photo Library, plus any other synchronized data or backups you may have in iCloud.)

If you have files in iCloud Drive, I believe you can control which ones have local copies on your iPhone.

Otherwise, most synchronized data needs space BOTH in iCloud AND in device storage on your iPhone. The copy in iCloud allows synchronization, and the copy on your device lets you use the data even when offline.

Lawrence Finch wrote:

But note that anything that you sync by the first method will be excluded from the iCloud backups.

If your phone gets run over by a steamroller, and you were using iCloud Photos, your photos would not be saved in your iCloud backups. But connect another device to your iCloud Photos library, or log into the iCloud Web site using your Apple ID, and you'd get the ones in iCloud back.

If you weren't using iCloud Photos, and weren't doing iCloud backups (that included photos – it is possible to exclude them), and had not backed up your photos by any other means, your photos would simply be gone.