What you see in File Explorer is only a marker. But the files (the actual files) are still ONLY in iCloud. It'll sync the content in iCloud Photos to the local PC. Now iCloud for Windows acts more like OneDrive. Remember that iCloud for Windows works differently now, compared to past versions (when it 'just' downloaded photo and video files onto a Windows PC and after that never cared to what happened to a a photo file in iCloud).
