Q: Hard drive is full even with optimization on

I have an admittedly large library (750GB), so I am paying the $20 a month for a full terabyte. I have everything on my iMac. I turned on iCloud Photo Sharing on my wife's Macbook Air which had 60GB of space. I turned on the optimization option, so photos would be stored primarily in the cloud and pulled as needed.

Even though I did this, It filled all 60GB then crashed, as there was only 5MB of space left on the drive. I deleted some other things and rebooted. Now Photos won't go below 3GB or so of disc space, but it is only showing 2 thirds of my Photos and a message saying the hard drive is full.

This is rather puzzling, as my Phone/iPad are able to handle all the images with way less than 60GB of space. Does anyone have a solution for this? Thanks.