iCloud & iCloud Photos · Online-only files and Optimize Mac Storage
What does Optimize Mac Storage do in iCloud Drive settings?
Short answer: Optimize Mac Storage lets macOS remove local copies of older iCloud Drive files when space runs low, keeping them in iCloud. Turn it on in System Settings → your name → iCloud → iCloud Drive.
Optimize Mac Storage lets macOS keep older iCloud Drive files in iCloud only and remove their local copies when your Mac needs space. Files you use often stay downloaded, and anything online-only downloads again when you open it.
Turn it on in System Settings → your name → iCloud → iCloud Drive (the exact wording varies slightly between macOS versions).
It's a good setting if you're tight on space. The difference with Storage Studio's Optimize Cloud Storage is timing: macOS decides for itself when to free files, usually as space runs low, whereas Storage Studio frees downloaded iCloud files right away when you ask. You can use both. See how Storage Studio frees iCloud files.