Hi pr0cy0n,
1
Yes, that is correct, that free version is online only, it isa cut-down version of the office apps, it does not have full functionality, and you would need to download the files you create with that.
2
Yes, if that would suit your needs, you could use Microsoft 365 instead of that other software.
However, the way OneDrive works is different to Carbonite, it is not a local backup utility, it will sync your files form the Documents, Desktop and Pictures folders automatically to the Cloud, and you can add other folders to sync too.