Thank you LACAllen! Despite what Apple Support told me you are correct. Eventually the photos are copied from iCloud to your iOS device if the "Download and Keep Originals" setting is on.
I contacted Apple Support and their response was that "Download and Keep Originals" only applied to photos taken on the device. They maintained that this setting would cause the full-res version of the photo to stay on the device and be uploaded to iCloud. The support person I spoke to seemed very certain of this. This is not the case.
I have a fairly large Photo Library (~12,000 photos; about 70GB) that I finally converted from iPhoto to Photos. I tried the migration one year ago when Photos first came out on the Mac. I had so many problems I reverted back to iPhoto and continued to use iTunes to sync all my photos to my iPad and iPhone. However, the feature differences between the no-longer-updated iPhoto app the new Photos app on the Mac was beginning to be a problem.
After paying for the iCloud 200GB storage upgrade and uploading the pictures from my Mac into iCloud, I switched my iPad Photos settings over to iCloud and "Download and Keep Originals" (Settings> iCloud> Photos> iCloud Photo Library). After about 12 hours I checked the iPad and every picture I randomly picked to view was still low-res (the high-res version would download when you opened the low-res version). I assumed that the full-res versions were not downloading. However, this morning I checked and found that the pictures were indeed almost done downloading!
I have since discovered a couple ways to check the progress of the downloads. One way is to go to Settings> iCloud> Photos. You may see an "Uploading xxx Photos..." message when it is downloading:
The problem is iCloud seems to trickle the photos down and suspends the downloads periodically. Most of the time this message just says "Last updated at ...". I am sure Apple carefully throttles the downloads so their servers do not get overwhelmed.
A more accurate way to see the progress of the downloads is to temporarily, and carefully, turn off the "iCloud Photo Library" setting. The confirmation message that comes up shows you how many photos and/or videos have not be downloaded yet. In my case the number was down to 45. It was basically done (I started with ~12,000):
Of course, you need to be careful with this. Be sure to tap on Cancel! If you tap on "Remove from iPad" the photos downloaded so far will be deleted from the iPad and you would need to start the downloads all over again.
I hope this helps others. I wrote this up because I could not find any accurate info and there seems to be a lot of questions and confusion about it. I will update this with additional information if anything changes.
