Will Time Machine back up files in iCloud Drive to an external drive?

There seems to be some confusion about iCloud icons. I found this from MrHK,

iCloud drive icons: What do they mean? - Apple Community

• • In iCloud: The In iCloud status icon tells you that the folder or file is only in iCloud. You must be connected to the Internet to work with the item, unless you download it to your Mac. Control-click the file, then choose Download Now.
  • Ineligible: The Ineligible status icon tells you that the folder or file could not be stored in iCloud. This is usually because you don’t have enough iCloud storage. To learn more about freeing up storage, see Optimize storage on your Mac.
  • Downloaded: The Downloaded status icon tells you that the folder or file is up to date between your Mac and iCloud and you can view or edit it immediately, with or without an Internet connection.
  • Waiting to Upload: The Waiting to Upload status icon indicates that the folder or file is not yet stored in iCloud.
  • Out of Space: The Out of Space status icon indicates that the folder or file can’t be stored in iCloud because there isn’t enough iCloud storage.A similar icon can also appear next to iCloud Drive in the sidebar, where it indicates that iCloud storage is full.
  • Pie chart: The pie chart status icon gradually increases from clear to dark as the files are transferred.The same pie chart can also appear next to iCloud Drive in the sidebar, where it indicates the overall progress for files transferring to and from iCloud Drive.

From 2017. On my Mac, this

is for a photoslibrary package that is listed in iCloud Drive but doesn't belong. It's different from

shown above for ineligible. Don't know why...

Provided you have not optimized your iCloud Drive files, they all remain on your computer and will backup through Time Machine. If you have optimized, and if files have been offloaded to iCloud only, those files offloaded to iCloud will not backup as they are not resident on your Mac.

Hi Robin. I came across this question today, but see you asked it a year ago. Not sure if you still have this question.

Optimizing and defragmenting are not the same thing. When you defragment a drive, it is as you stated, it moves data within the drive to create more spaces in its sectors. Yes, this causes data to be contiguous. With a spinning drive, the needle (drive reader arm) does not have to move as much within the entire disc.

Optimizing refers to allocating free space in your internal drive so it does not fill up to maximum capacity. Eventually, it can depend on how much data you have. Optimizing works in conjunction with iCloud. The full-size files are stored on Apple's iCloud servers, and what you see in your iCloud Drive on your computer is more of an alias/shortcut to those files. Whenever you open or preview said files, they are downloaded to your computer until either you choose to "remove download" to keep it only on iCloud servers or a determined amount of time passes since you last opened said files. The macOS system decides the amount of time, not the user.

As to downloading files that are in iCloud Drive (these have the cloud icon when not fully on your local drive), so that now they are fully available on your local drive (no cloud icon), then running a Time Machine backup, it does not necessarily mean that those fully downloaded files with iCloud Drive on your computer will be included in the Time Machine backup. I just went through this myself. I downloaded all folders and files within my iCloud Drive on my computer and ran a Time Machine backup, and the only folders and files that were included in the backup were system folders and files, and my Desktop and Documents folder. These last two are included in the System Settings iCloud preferences.

Hope this helps give you a better understanding.

In God's Harmony