Adding to FoxFifth, here's an example: Suppose you have "Finances.xlsx" in the "Money" folder in your User folder on your Mac. Then you drag "Finances.xlsx" to iCloud Drive in the Sidebar of a Finder. "Finances.xlsx" will no longer be found in "Money;" it will now reside in iCloud Drive. You can put it in a separate folder there, if you like-- iCloud Drive acts like a drive.
Even though you see it in a Drive, "Finances.xlsx" will still exist as a file on your Mac, and it will be instantly available even if you're not connected t the internet.
All your other connected Macs will also see it in their iCloud Drives, and they will have equal instant access, since the "Finances.xlsx" will exist as a file on those computers, too. But if anyone makes changes to the file, then those changes will be copied to iCloud and then copied to the other Macs as they are connected to the internet.
The purpose of putting the file in iCloud Drive isn't to save storage space; it's to make it available to more machines. It will also be available at the Apple ID protected iCloud.com account on to browsers.