Does iCloud Drive automatically download all files?
Yes, iCloud drive on Macs keeps all of the files locally on every Mac, and needs enough space to do so. There's (at present) no selective sync option to keep some folders or files off some Macs.

If you have more files in the cloud than space on your devices, you will not have all the files stored locally.

Windows is designed similarly and there isn't a specific article by Apple to document how iCloud is designed. The general page says your files exist everywhere and glosses over the reality that when you initially add files, there's a delay in uploading and checking the files in.


https://www.apple.com/icloud/icloud-drive/


On the Mac you can use brctl log -w to inspect the internal status of sync, but be aware there are lots of "errors" and "warnings" that don't impact the actual results of an account with all files synced.