Main purpose of iCloud
What is the iCloud for if it isn't to extend the iPhone's internal storage?
- Backing up manually to iCloud.
- Automatic backups to iCloud.
- Syncing data to iCloud such as pictures, app data, and more.
- Providing convenient continuity features along with other convenient iCloud related features.
What's in iCloud
iCloud is meant to store the data you personally choose to include within your iCloud settings. If you go to settings > click your name > and click iCloud, you will see that there is an entire list of data types and apps labeled "Apps Using iCloud." Whatever is turned on in that list, is taking up space in your iCloud.
However, there are most likely other data types in iCloud that are not on this list. This list is specific to data that is syncing to iCloud via wifi instantaneously. If apps or data are on in this list, they are not being backed up to iCloud (even if you set up automatic backups); instead, that app and data are being synced to iCloud via wifi. If data is not in the "Apps Using iCloud" list and you back up to the cloud, it is backing up to the iCloud instead of syncing.
With iCloud, you are always either syncing your data or backing it up (you are never doing both consecutively). If you are not doing either, you need to consider setting up automatic backup or start doing manual backups to a Mac or PC using iTunes in order to avoid data loss.
Are you using iCloud?
In short, yes. Even if you decide you do not want to use the storage features and don't back up to the iCloud, or put any data manually into the iCloud, your Apple ID is an iCloud account, which is there to be used to whatever capacity you would like. You do not have to back up your iPhone or store your app data in the iCloud. Alternatively, you can back up your phone to iTunes.
However, there are many features within your iPhone, and other Apple products for that matter, that require iCloud to some capacity, and if you are not using iCloud (maybe you aren't even signed in to iCloud), you may not have access to those many features, including continuity features.
iCloud storage options
Whenever you set up an Apple ID for your Apple products, that Apple ID is allotted a free 5 GB of iCloud storage. If you plan on using the iCloud, this 5 GB will not be enough and you will eventually need to upgrade your storage to the 50 GB (.99 USD), 200 GB (2.99 USD), or 2 TB (9.99 USD) iCloud storage plans available.