Freeing up space · Free Up Space wizard and button
What is the optional cloud step in Free Up Space?
Short answer: It's an opt-in, per-provider step that makes downloaded cloud files online-only again. Files stay in the cloud and re-download when opened. iCloud is freed directly; other providers via their Remove Download command.
Step 3 turns downloaded copies of your cloud files back into online-only files, so the local space returns while the files stay safely in the cloud. It's opt-in, and you choose it per provider. It's never a delete — open a file and it downloads again.
For iCloud Drive it happens in one step. For Google Drive, Dropbox and OneDrive, current versions of macOS don't let one app free another provider's downloads, so Storage Studio reveals the files in Finder and points you to that provider's own Remove Download command.
More on online-only files is in the iCloud FAQ.