ICloud drive disk still full AFTER upgrading to 1TB storage space

Hello,
I just bought the $19.99/month 1TB iCloud storage plan so that I can back up all 800GB of my iMac data to my iCloud Drive. However, when I drag and drop my files over to my iCloud Drive in Finder, it says disk full. Am I doing something wrong? There should definitely be more than enough room. I have also checked to make sure my storage plan was indeed upgraded correctly in iCloud management and there is definitely a full 1TB of available space.
I have even tried backing up my files to my iCloud Drive using Time Machine. My understanding was that with the Yosemite 10.10.2 update, iCloud Drive should now show in Time Machine's preferences as a back up drive option. But after upgrading to 10.10.2, I still do not see it in there as an option.
Please help!
Thanks in advance.
Kit

So is there no way of not creating the shadow copy on my local machine also?
No, iCloud Drive is meant for the working copies of your documents - to store them on a central location in iCloud and update them on all your devices. The shadow copies are there, to guarantee, that you can access the documents, when you are offline.  See:  iCloud Drive FAQ
Sounds like using Time Machine to backup a single copy to my iCloud Drive would achieve this right? But as I said in my original post, I'm not seeing iCloud Drive as a back up target disk option in preferences.
Time Machine can backup your iCloud Drive, but it cannot backup to iCloud drive. Perhaps you misunderstood, what the latest Yosemite update meant for Time Machine:  (see this link:
About the OS X Yosemite v10.10.2 Update - Apple Support)
Adds the ability to browse iCloud Drive in Time Machine
This means, that you can now restore your iCloud Documents from Time Machine more easily, because you can browse them, but Time Machine cannot store backups on iCloud Drive.

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