Using Photos app on a MacBook without much storage

Yes, "Optimize" on a Mac works essentially the way it does on an iPad. If the full-resolution image is needed for editing, printing, or enlarged viewing then it is downloaded and kept on device until the storage is needed for other purposes later.

James Heliotis wrote: …I already have a backup -- my entire photo library is stored on a desktop Mac at home.

In addition to what markwmsn said, please understand that your other Mac is not a backup! Any mistakes you make, deleting the wrong pictures, perhaps, on any device will quickly and automatically be copied to iCloud Photos and all other connected devices. The idea of a backup is to have a copy that doesn't change when you mess up! You need to use Time Machine or some other backup software with an external drive connected to your main computer. And you should periodically copy your Photos Library to a different external drive.

Here's a way to backup an Optimized Library should you need to:

Backup iCloud Photos with an Optimized Mac

James Heliotis wrote: Yes, on my desktop Mac Mini I have TimeMachine set up to backup

Cool-- good to know.