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It does not delete the source footage, but it could make the files "offline" which might effectively be the same thing if the source footage is no longer available.

Source footage that we import into a Premiere Pro project file is linked to that project.  The source footage does not get embedded and must be available (or "online' or "linked") in order to continue editing.   A project can be opened with some or all of the source footage offline, but the functionality of editing is limited.  

If some video files were located on your iCloud storage, they would need to be there the next time the project file is opened.  If moved to a different location (ideally local storage or network storage specifically configured for video editing), then it can be reconnected.

Options like LucidLink are available for video editing from cloud-based storage, but iCloud storage is not the right kind of storage for it.