What happens if I delete an icloud backup?

A backup is just a copy of data on your iPhone, yes. However some types of data on your phone are not stored in iCloud Backup, but rather in other parts of iCloud or similar services. This includes for example photos in iCloud Photos, files in iCloud Drive, and Contacts, Calendars, Bookmarks, Mail, Notes, Health Data and Voice Memos in iCloud.

Deleting a backup from iCloud will not delete the data on your iPhone.

If you delete all the backups of your phone, you'll only have the data on your phone. Data that was previously stored only in the backups, and that is not stored on your phone or in other cloud services, will now be gone.