When the Documents folder is included in iCloud Drive with System Settings>[name]>iCloud>iCloud Drive, the Documents folder is local-- it being in the iCloud Drive folder just means that it's copied to iCloud Drive at iCloud.com and synchronized with other connected devices. The folder is made invisible in your User's folder, but it's still there.
If you turn on Optimize Storage, then files in the Documents folder, like other iCloud Drive files, can be removed from local storage to save space. But if Optimize is not used, then all the files in iCloud Drive are always local.
Even when you choose Optimize Storage, you can choose individual files to be kept local with a right-click menu.
It might help to see this:
Understanding iCloud Drive - Apple Community
Pretty much the whole point of iCloud is about eating your cake and having it, too.