iCloud & iCloud Photos · Desktop & Documents in iCloud
Why did my Desktop files move after I turned on Desktop & Documents in iCloud?
Short answer: Turning on Desktop & Documents Folders moves those folders into iCloud Drive, so Finder lists them under iCloud in the sidebar. Your files are still there; they now sync and may become online-only with Optimize Mac Storage.
Turning on Desktop & Documents Folders moves those two folders into iCloud Drive, so Finder now lists them under iCloud in the sidebar instead of under your home folder. Your files are still there — open Desktop or Documents from the sidebar's iCloud section.
From then on they sync to iCloud and your other devices, and with Optimize Mac Storage some files may become online-only. If you'd rather keep them local, see turning Desktop & Documents off.