Physical copies, apparent duplicates and the iCloud

I transfered all of my iTunes library from an old desktop to my new computer before I even installed iTunes. After getting everything up and running and installing, I selected the new library.
When I started to look through my library, I noticed that a great number (not all) had duplicates for some reason. One has an iCloud download logo next to it, the other will have my old ratings. It appears that the iCloud one is a copy on the internet and the other with the ratings is the physical file I transfered. Both seem to play without issue.
I have a couple of questions:
Which is the one I want? If it's in the iCloud, do I ever need a physical copy of it?
Should I delete the old and download the new version?
Should I simply leave the cloud version there and/or delete the old?
Why are some copies in the iCloud and others not included?
If it's in the cloud, should I go through the backup and delete copies for the sake of space (if I wanted more space)?
Should I delete the physical copies and the backup and create a NEW backup on the external drive I used to acknowledge that my purchases are now safe in the cloud?
It's confusing and a little scary. I just went through tons of literature to make sure I copied my iTunes library correctly so as not to lose all my purchases. Now it appears I have duplicates!

If you are syncing contacts with iCloud you should not be trying to sync contacts with iTunes too, if that's what you're doing.  This may help you resolve your problem with duplicates: http://support.apple.com/kb/TS4147.

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