Insufficient space on drive for Monterey due to iCloud

Welcome to the Apple Support Communities.

Go to System Preferences > Apple ID, and select "Optimize Mac Storage". I'd also encourage you to review: Optimize storage space on your Mac - Apple Support.

You can then upgrade to macOS Monterey: How to upgrade to macOS Monterey - Apple Support.

Cheers,

Jack

Copies of the files stored on iCloud Drive are only downloaded to the MBA when the user purposefully chooses the download the files.

As previous poster attempted to explain the Optimize feature built into the OS will store Originals of the Files on the iCloud Drive.

Apps and features that use iCloud

How iCloud keeps information up to date across all your devices

Introduction to iCloud

" Insufficient space on drive for Monterey due to iCloud "

Glean that the real issue is the MBA has a tiny 128 GB SSD and using iCloud Drive. Is that correct ?

Manage Storage

What is “Other” storage on a Mac, and how can I clean it out?

Free up storage space on your Mac

OmniDiskSweeper Safe to use

How to delete Time Machine snapshots on your Mac

See used and available storage space on your Mac

The final word from Apple on Managing the " Other " Category

Other: Contains files that don’t fall into the categories listed here. This category primarily includes files and data used by the system, such as log files, caches, VM files, and other runtime system resources. Also included are temporary files, fonts, app support files, and plug-ins. You can't manage the contents of this category. The contents are managed by macOS, and the category varies in size depending on the current state of your Mac.

Ok - suggestion and only related to the MBA

1 - enable Optimization from previous posters link.

2 - sign out of iCloud. This may offer to download all files from iCloud - do not.

3 - restart computer and look for ALL Locally stored files that would appear from iCloud and move them to Trash and empty Trash.

4 - restart computer and Sign Back into iCloud

This process will have removed the locally stored iCloud files but still allow the user ( you ) to selectively download only the files one what's to work on.

Are you aware of any option to choose which folders/files are NOT held on my drive unless specifically requested?

You can ctrl-click on a file or group of files and choose Remove Download.

You may want to show the iCloud Status column so you only select downloaded files as the option won't appear if any are not downloaded.

Any files downloaded will stay downloaded until such time as they become "unused."

Dropbox Data was move from and to iCloud and Deleted from Dropbox ?

Dropbox is no longer used on Both computers and removed from both machines ?

Welcome and do keep use posted on the progress.