Is my understanding of saturation and cloud formation correct?
The height at which clouds form is called the cloud condensation level (CCL), where air lifted by convection powered by temperature differences cools and condensates. When it comes to basic physics, yes, evaporation would need to be less (i.e. zero) for condensation to occur. 
However, this is not necessarily the correct way to look at it, as relative humidity is the determining factor for cloud formation. Relative humidity depends on temperature and pressure. 
As a volume of unsaturated air cools, its relative humidity increases. If sufficiently cooled, the relative humidity becomes 100%, the temperature equals the dew point, and clouds form. So it's less to do with evaporation and condensation than the amount of humidity, and the temperature (and temp gradient) and pressure of an air mass.