desktop reduced to a folder in iCloud

Your Desktop window (the main screen) should appear the same whether the Desktop and Documents option of iCloud Drive is on or off. When you turn that option on, the Desktop folder (which contains the files that appear on your Desktop window) are moved from your Home folder in Finder (which is named after your username) to the iCloud Drive folder in Finder.

If you don't want it to be synced with iCloud, you need to turn off the Desktop and Documents option of iCloud Drive. Note that affects both the Desktop and the Documents folders. There is no option to do just one of those.

If you want to turn off the Desktop and Documents option of iCloud Drive, see the following from Add your Desktop and Documents files to iCloud Drive - Apple Support

Turn off Desktop and Documents

1. From your Mac, choose Apple menu  > System Settings. In macOS Monterey or earlier, choose Apple menu  > System Preferences. 
2. Click Apple ID, then click iCloud.
3. Under Apps Using iCloud, click iCloud Drive. 
4. Turn off Desktop & Documents Folders.
5. Click Done.

What happens when you turn off Desktop and Documents

When you turn off Desktop & Documents Folders, your files stay in iCloud Drive and a new Desktop and Documents folder is created on your Mac in the home folder. You can move files from iCloud Drive to your Mac as you need them, or select all of your files and drag them to the place you want to keep them.

Or if you want to completely turn off iCloud Drive, see the following from that same support document:

What happens when you turn off iCloud Drive or sign out of iCloud

If you turn off iCloud Drive or sign out of iCloud, a new Desktop and Documents folder is created in your home folder. You also have the option to keep a local copy of your files that are in iCloud Drive. If you keep a local copy of your files in iCloud Drive, they're copied to a folder called iCloud Drive (Archive) in your home folder. You can move any files that were in your iCloud Desktop and Documents to your new local Desktop and Documents.

Two other things you can do if you don't want anything uploaded to iCloud in Documents and Desktop. Create a Folder called Docs and move it over the the side bar. Store your documents in that rather than in Documents. Second, don't use Desktop to store anything.

You can leave iCloud on, but don't have Desktop and Documents on in the case that you do want to save something to iCloud and then all you do is drag it the iCloud in Finder.

That is the Desktop & Documents option of iCloud Drive. See information in Add your Desktop and Documents files to iCloud Drive - Apple Support