I'll do my best to explain so bear with me....
In this image showing a Finder window sidebar, the top Documents folder's is not an actual folder. This is the Documents folder that you find in your User's (home) folder. The other two show as folders I created named Documents. One is on iCloud and the other on an external drive.
If you remove the iCloud Drive icon from the Dock, you should be able to drag the Documents folder in iCloud to your Dock. Option click on the icon. Select Folder. This will be the generic folder icon and not the icon for the last item you selected in the folder.
You can save your files to iCloud folder. They don't have to be in a folder.
Hope this helps!