Trying to Understand iCloud Photo Library and Photo Stream

FIrst and mainly, if I have iCloud Photo Library and/or My Photo Stream turned on on both my iPhone and iMac, on my iMac, when I am looking at those photos in the Photos app on my Mac, have those photos already been physically downloaded to my mac, or am I just seeing them from the cloud?

When you have iCloud Photo Library enabled on all devices, My Photo Stream is redundant. With iCloud Photo Library enabled, your Photos Library resides in iCloud and your devices are syncing with it. Any photo you add to the library on any device will upload to iCloud and then sync to your other devices. If you are using iCloud Photo Library, you need My Photo Stream only to transfer photos from and to devices, that are not using iCloud Photo Library.

have those photos already been physically downloaded to my mac, or am I just seeing them from the cloud?

This will depend on your Photos > Preferences > iCloud.

If you enable "Download Originals to this Mac", the full resolution originals will be stored on your Mac as well. With "Optimise Mac Storage" you will only have lightweight previews on your Mac, and if you want to edit a Photo it will have to be downloaded from iCloud.

You cannot be selective, what will be downloaded and stored locally. And all photos will upload to iCloud. You cannot have a Photos Library only partially uploaded to iCloud. It is all or nothing.

Don't add photos to your Photos Library, that you do not want to upload.

I've read about workarounds such as creating a new photo library that is smaller but I don't really want to do that.

That is how it is meant to work. Have a local library with all photos, and an iCloud Library with a selection.

And, can I choose to have the iCloud photo Library be a one-way option, meaning that I would turn it on on my iPhone, but not necessarily want to turn it on on my iMac because of having too large of a photo library to upload all my iMac's photos to the cloud.

You could do that. But you would not be able to see the iCloud Library in Photos on your Mac, if you do not enable it. You could only see it using the Photos.app at www.cloud.com.

Finally, I'm trying to decide where to organize my photos into albums from. My old system was basically to organize my photos into albums on my iMac, and then choose specific albums to sync to my iPhone to have with me. If I were to turn on iCloud photo library, I would most likely prefer to get in the habit of organizing my photos into albums on my iPhone, assuming that those albums will show up in tact in the iCloud. The problem is, any albums that I have already created that are on my iMac, as I am not going to be able to pick and choose and upload specific albums to the cloud. From on my iMac, it's an all or nothing option, requiring me to buy more iCloud storage space and to upload my entire photo library to the cloud, which I do not need to do.

This whole thing would just be a lot easier if Apple would allow you to pick and choose what you want to store on the cloud, and especially on iOS devices delete the locally stored version from your phone once you put it into the cloud, but I know this is and how they have it set up. Unfortunate.

Instead of using iCloud Photo Library you could use Shared Albums. Shared albums are great for syncing selected photos to all devices. Simply share albums to yourself in iCloud. These albums will appear on all devices that have iCloud Photo Sharing enabled and do not count against your 5GB iCloud Storage.

See this Help text how to use Shared albums: iCloud: iCloud Photo Sharing FAQ

There are some limits - you cannot upload too many photos at once to shared albums: iCloud: Photo Stream limits