Do you already know how to get rid of applications on Mac? Now MacOS 10.12 Sierra has a special feature that allows you to sync the folder Desktop and Documents on your Mac to iCloud Drive. The great thing about it is that you are not using other backup methods because all these files are synced to your account in iCloud and are available on other iOS devices and Macs. However, this update automatically deletes all local copies of these files if they are actively used. You can download them if needed but it is actually not very convenient.
The worst option ever
In the support document Apple explains how to get some free storage space: when you need some, on your Mac are kept only those files you have recently opened, so you can work offline easily. Those files which are kept only in the iCloud have a download icon so you can download the original documents clicking on it.
You have just one copy of files in case they are removed from all connected devices and kept in iCloud which means that you completely rely on Apple services. You cannot back up these files unless it is kept on your Mac as they have been removed and kept only in iCloud (where you can download them on demand).
So probably the best option you can choose is to have at least a few backups of these files because Desktop and Documents are not pretty reliable.
How Apple can deal with it
Apple could offer some API for backup services or integrate it with Time Machine, each option would be great. For example, there could be at least 2 copies stored locally and offsite if the iCloud service does not delete a local copy of files. It would also be awesome to use some special program to be able to back up offsite and mark documents archived.
Also Apple requires from you to pay for storage every month (above included 5GB) and in case you will not, you may end up downloading all these removed files or just losing access to it. This is pretty unclear. So we would recommend you using external drives or do a few backups of required files not relying completely on Apple solution – that may be too much!