Why are all the folders on my MacBook Air sub-folders of iCloud?

I've had my new MacBook Air for a little over a week. Today I realised that it is automatically trying to sync all of my folders with iCloud. iCloud is now full, I have no wish to buy more storage. Nor do I want to sync the content of this laptop with my old MacBook Pro. I don't have any other Apple devices.

I was going to turn off all of the iCloud backup options, but a warning pops up telling me that would delete my document folders from my laptop, but they'd still be on iCloud - which seems the wrong way round to me.

Similarly, if I use Finder to look at folders listed under iCloud and delete any of them, they disappear from the list of folders under Favourites on finder (and presumably from the laptop's hard-drive).

Given I use Time Machine regularly, is there any point using iCloud?

If I wanted to use iCloud at all, how do I set up my laptop so I can choose which folders to sync, and which not?