iCloud is for backing up your small portable device, iPad, iPod, iPhone. See: iCloud: Backup and restore overview
And you can use iCloud Drive as a central storage of your documents and data for your all your devices, so you access them easily from all devices. But that will be no backup - iCloud will be holding the working copies of your documents. If you accidentally delete or modify a document on iCloud Drive, you cannot restore it from iCloud Drive, for it will be gone. So moving your documents and data to iCloud Drive will not provide much added safety. You will still need Time Machine to make regular backups on a local drive.
Thus said, you can use iCloud Drive like an external drive. Make a current backup of your Mac, before you begin to move folders around.
iCloud Drive will appear as a folder in your Finder sidebar. You can just drag and drop documents or folders there. Some folders have special icons and are marked as "application collections". Use these folders only for documents created by the specific applications. For all other kinds of documents create your own folder.
See this support page: iCloud Drive FAQ