iCloud says there isn't enough free space to back up a 250GB folder despite recent storage upgrade

Why does iCloud say there "isn't enough free space" to back up some files from a local disk?

I just upgraded my iCloud storage a few days ago, from 200GB to 2TB. Most of this is unused. But when I tried to copy a folder of ~250GB to iCloud, it refused, saying "There isn't enough free space". This can't possibly be right.

[Re-Titled by Moderator]

Original Title: iCloud says "there isn't enough free space" to back up a local folder to my iCloud drive. Impossible!