I still don't get iCloud

Hello everyone.
I have been tempted to use iCloud on my iPhone to sync with my Mac and in the future, with an iPad.
I got tired of a 10 hour backup that wouldn't finish so I cancelled it and just decided to wait.
Now that I wanna take the plunge I still don't get how iCloud works, for some scenarios.
For instance, I don't understand the difference between Storage and Backup?
So I don't know if I'm correct to exemplify this scenario:
iWork's Pages has iCloud enabled.
Now suppose you have an iPhone and an iPad.
On Friday, at 10 PM you make a document (DOC1) on Pages on iPhone and close it. Now you go to sleep and it automatically makes an iCloud Backup since it's plugged to energy and your WiFi is on.
On Saturday, you make another document on Pages (DOC2) on iPhone at 10 AM. Then doing whatever required for it to appear into your iPad (opening Pages on iPad?) you are able to see DOC1 and DOC2 on your iPad.
Now at 2 PM Saturday your iPhone falls down a cliff and explodes into a million pieces. You take your other iPhone (you're rich remember?) and restore it from your Backup (Friday night) so after it's done you open Pages on your "other" iPhone and BANG, you have DOC1 there (since that's the last the backup did), or do you have DOC2 as well since it was saved to the cloud as "Storage" as well??????
Suppose you have an app like AwesomeNote that DOESN'T have iCloud support. What is going to happen? I assume it will only save the settings for the app, but then it WON'T automatically sync to other devices? So basically it will ONLY be useful shall you need to restore from a iCloud Backup but NOT shall you wanna sync your notes between iOS devices?
So as you can see I don't understand the difference between app settings stored on iCloud per developer's enabling (new version of app after iOS 5) and app settings in an iCloud backup.
I still think there is a limbo between commercials and real life. Or maybe I'm just either too complicated, too advanced or too much of an idiot to understand what most people seem to just simply assume and move on with their lives.
Oh and one last thing, could I use iCloud to just save "data" to work in sync with devices (like in the commercial) but ask it NOT to backup anything and just use the old iTunes backup for that? (In which case I'd have to assume iCloud could potentially save in a given timeframe 3 versions of the same settings of an app, two for the backups for your iDevices -iPhone and iPad- and other for just "sync").

Welcome to the Apple Community.
In your opening scenario, you don't need to restore from back up at all. Doc 1 & 2, will be in iCloud, so even if you have to go purchase a new phone and set it up, when you enable iCloud it will push the two docs to your device.
No you don't need to back up to iCloud, you can still use the sync features and continue to back up via iTunes, indeed unless you don't have a computer or have infrequent access to one, I'd recommend this is what you do.
Not sure what happens when you have the same document open at the same time, there is a conflict feature, but I haven't seen how it works yet.

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