Best way to clear up space and dump to computer when getting iCloud storage backup prompt?
First question: yes, iCloud backs up your photo as it is. If you delete media from your photos library it will be deleted from iCloud. (I might add that videos are also stored in the cloud - and consequently take up the most room).

Second question: It is possible you can use the Scanner and Camera wizard to import photos from your iPhone. Here is are two articles that briefly describe the process.


Tech Recipes
OSX Daily


Before you delete all (or most of) your photos off your iPhone, I would recommend that you double check that everything has been transfered correctly so you don't lose any pictures. 

You probably already know this but it's worth mentioning anyways. When you go to delete photos from your iPhone, open the Photos app, click the Camera Roll album, then select the box with the arrow icon at the top right of the screen. Select pictures to be deleted, then tap the Delete button in the bottom bar (this is also a way to email more then one picture).

Of course, the other option would be to turn off the iCloud backup of your photos. (You already know how to get there but go to iCloud > Storage &amp; Backup > Manage Storage > [your name] iPhone > Turn Camera Off.)