Will iPhone download all photos from iCloud in optimise storage mode?

Solution 1:

In Optimise storage mode, low quality thumbnails of all photos and videos will be synced to iPhone and iPad. Full library will be there on Mac (if it is set to store full version) and iCloud only.

When you try to open(or edit) a photo on iPhone from its thumbnail, only then it downloads the full size file. So if you repeat the same for a lot of photos, there can be conflicts between which files to keep and which to erase to save space on iPhone. Then you'll see warnings for storage.