That means it is cached and available offline, but it might be removed if free disk space gets low. You can open a locally available file anytime, even without Internet access. When you open an online-only file, it downloads to your device and becomes a locally available file. You can’t open online-only files when your device isn’t connected to the Internet. You see a cloud icon for each online-only file in File Explorer, but the file doesn’t download to your device until you open it. Online-only files don’t take up space on your computer. Your files will have these statuses in File Explorer: Microsoft explain about the different statuses fairly well in their Learn about OneDrive Files On-Demand article, but you might appreciate a little extra clarification of the difference between locally available files and always available files. What's the difference between Locally Availbale Files and Always Available Files? You can also read Microsoft's documentation Learn about OneDrive Files On-Demand if the information you require isn't covered by this article.
New files created online or on another device appear as online-only files, which don’t take up space on your device.
When you turn on Files On-Demand, you’ll see all your files in File Explorer and get new information about each file. OneDrive Files On-Demand helps you access all your files in OneDrive without having to download all of them and use storage space on your device. You need to be running the Windows 10 Fall Creators update (v 1709) in order to have this feature.