Not all apps support iCloud or some other online storage, so no, not all data from all apps is automatically put up on cloud storage. Even apps that support iCloud document storage have to be enabled to do so. And they store documents online, not settings, app options, app specific passwords (if supported and if used), and other app specific data.
Actually the whole idea behind iCloud (other than storing whole device backups and providing a free email) is to provide a document synchronization service, not a backup or archival service. Your documents only live in iCloud for the purposes of cacheing them in a common place to be synchronized across all devices using that iCloud account. If you delete something on your device, it is deleted in iCloud and then on all connected devices. Your analogy to a hardware based office or personal backup or archive scenario is simply incorrect.
Whereas an iCloud backup file includes settings, options, passwords, and all the other data associated with apps.
Many people also simply don't use iCloud, or any online storage services as they prefer to use their own personal hardware for backup and archives. There is no requirement to even have an iCloud account with an iOS device. or one can simple enable find my iphone but disable all other iCloud features and options.
E.g. I do not use iCloud for photos or videos at all and never have. i do as I always have and simply import my photos after taking them onto my MacBook Pro and backup that to a TimeMachine drive and a couple of whole device clones. So my photos would have to be re-sync'd from my laptop if I needed to restore them.
My neighbor doesn't use iCloud for anything at all - he does not even have an iCloud account. He still sync's everything with iTunes as he has gotten used to over the years before iCloud ever existed. He can still use the app offload feature if he ever wished to.
The new iOS offload feature is intended to free space on the iOS device by temporarily removing unused apps or apps used infrequently. Yet it leaves their data and settings intact so the app can be quickly restored to its previous state by simply downloading it again from the App Store. It should re-install and be right back to its exact previous state, data, options, settings and all.