In Photoshop, in the welcome window with "Your Files" selected, I have the option to select individual cloud files and (using the option shown near the top of the window, "make available offline always." I've tested this by selected one or two files and making them available offline always. But I can't find where they are stored locally on my PC. (There is a folder on my PC named "Photoshop Cloud Associates," but the purported offline files are not located there. Using Windows File Explorer, I searched for the file names but no luck there either. Am I omitting a step or doing something wrong?
I can't find the location on my computer either, but as far as I can tell, Adobe does not intend “available offline always” to mean “there is a local file you can see and move around,” in case that is what you are looking for. I think offline available PSDC files are in some kind of invisible local cache that Adobe does not intend for a user to access.
The distinction is subtle, but it is there. “Available offline always” means only that when you open that PSDC file from the home screen or File > Open Recent menu in Photoshop, it’s fully available to open and edit whether or not you have an Internet connection. But if what you want is a file you can see on the desktop and move and link to from other applications such as Adobe InDesign and Adobe After Effects, an offline PSDC file is not available for that. To do that, Adobe still intends for us to choose File > Save As to convert a copy of the PSDC (cloud) file to a PSD (local) file.
I just dicontinued Creative Cloud this weekend and so I needed to download the files that I had saved to the cloud. "No biggie.", I thought, I'll just click the option to download all of the online-only files. but now I see how Adobe has intentionally made the process obscure and tedious. Not cool! I cannot believe that I need to download individual files and pick a location to save them. Also, why doesn't Adobe show you where the offline files with a green checkmark are located? Your hypothesis seems valid ("...files are in some kind of invisible local cache that Adobe does not intend for a user to access.) The worst part, I still consider myself a fan of Adobe products, so this is pretty disappointing.