Insufficient storage on iPhone.

iCloud is a syncing service to sync data between all your Apple devices. It does not increase the storage space on your phone. And if you delete stuff from your phone, it will delete those items from the iCloud as well.

The IPhone's storage space is a fixed size and cannot be increased. If you need more space on your phone, you will need to delete stuff.

The difference between phone storage and iCloud storage -

What's the difference between device storage and iCloud storage? - Apple Support

Here are some helpful articles that can guide you on how to free up storage space on your phone.

How to check the storage on your iPhone and iPad - Apple Support

Manage your photo and video storage - Apple Support

Clear Other storage on your iPhone or iPad - Apple Support

If you turn on "Optimize iPhone Storage", this gives the phone permission to substitute lower-quality, space-saving versions of photos and videos for full-size ones.

Note that there is no manual control over this feature.

• The phone – not you – decides which photos get the "lower-quality, space-saving" treatment, and which don't.
• The phone – not you – decides when local storage is getting low enough that it ought to give some more photos the "lower-quality, space-saving" treatment.
• The phone – not you – decides when there is enough local storage that it can quietly undo that treatment, and store full-size versions in local storage, once again.
• Even if the phone gives all of your photos the "space-saving" treatment, it will keep local versions of all of them. iCloud Photos is a syncing service, not an archival one.

If your phone's local storage is not full, or nearly so, it is quite possible that the phone has decided that for now, it does not need to give any photos the "space-saving" treatment.