Free space in iCloud is not empty space inside an iPhone. Apple distinguishes device storage from iCloud storage. A larger cloud allowance does not physically enlarge the phone, so first identify which of the two measurements the warning refers to.
Write down both readings
Open the phone's storage view and the iCloud storage view separately. Record used space and the largest categories in each. For a simple example, a phone might hold downloaded episodes while the cloud account has plenty of room. Buying more cloud capacity would not identify those local downloads for you.
Choose one category you understand rather than removing the largest-looking item blindly. For downloaded entertainment, check the app's own download controls and whether the content can be obtained again. For personal documents, confirm where another usable copy exists before removing anything.
Do not confuse removal with moving
A command that deletes a photo is not necessarily a command that keeps it safely in the cloud while removing only the local copy. Read the specific action and the app's explanation. If you cannot tell what will happen to other devices, pause that deletion.
After a deliberate change, revisit the phone's storage measurement. Check whether the category and available space changed as expected. Keep the cloud figure as a separate reference rather than treating either number as a summary of all your copies.