There is nothing easy about understanding all this but maybe this can help.
When you access your Photos app media under LumaFusion Sources, you are accessing content on your iDevice - not iCloud. Turn on Airplane Mode (i.e., no internet access) and you'll see you still have access to your Photos app media because it’s on your iDevice.
Note: You can also go to Settings-General-iPad Storage to see the GB amount of the Photos app media that is stored on your iDevice.
Just like other IOS built-in apps like Mail, Contacts, Messages, etc., you can only access the Photos app content through its associated IOS app. You can’t even access this content via the IOS Files app.
iCloud vs iCloud Drive
If you have turned on the Photos app under iCloud Settings, all media in the Photos app is automatically synced to iCloud - not iCloud Drive. That’s a separate thing.
Sync'ing the Photos app to iCloud allows you to access your media from all your iDevices including your computer.
iCloud Drive is Apple's version of file sharing apps like Dropbox and Google Drive. You can add your own content to iCloud Drive. You can also see this content via the IOS Files app.
I hope this is helpful,
P.S. Using the Files app, you can also add content to the LumaFusion folder that is located on your iDevice. See this recent post of mine for an example. https://goo.gl/eECqeh