What happens if I click "delete backup", do I still have my photos on the camera roll?

Yes! It will only delete your backup. Not your photos that are in the camera roll.

If you delete the iCloud backup for your iOS device, iCloud stops automatically backing up the device. You can also back up your device using iTunes.

The photos on the iOS device are never only stored in the backup. What would be stored in the backup are deleted pictures that you no longer have in the camera roll / albums.

Rather than delete the entire backup to make space in iCloud, you can choose to just not back up your camera roll until such time as you can get all the camera roll photos backed up elsewhere.

See my answer on How can I delete pictures off Photo Stream to free up iCloud storage space? for details.

Things get more complicated on iOS 8/9 with the advent of the Photos library stored in iCloud. You'd want to upload a picture from your phone showing the iCloud usage:

Settings > iCloud > Storage > Manage Storage

If you have an iCloud Photo Library at the top like I do above, then go to Settings > iCloud > Photos to check if your photos on that phone are part of the cloud. The steps there to make space are more involved than just deleting a backup or configuring the camera roll to not get baked up to iCloud.