iCloud & iCloud Photos · Desktop & Documents in iCloud
Why does Optimize Cloud Storage list iCloud · Desktop and iCloud · Documents separately?
Short answer: When Desktop & Documents Folders syncs to iCloud, Storage Studio lists iCloud · Desktop and iCloud · Documents as separate rows so you can make one online-only without touching the other.
So you can free one without the other. When Desktop & Documents Folders is on, your Desktop and Documents are iCloud folders too, and Storage Studio shows each as its own row — iCloud · Desktop and iCloud · Documents — next to iCloud Drive itself.
That lets you, for example, free an old Documents archive while keeping everything on your Desktop downloaded for quick access. On macOS 14 and later, macOS no longer lets apps free a whole folder this way, so the menu points you to Finder's Remove Download for the folder you pick.
The rows only appear when the option is on. If you turn it off, they disappear the next time you open the menu, because those folders are no longer iCloud folders.