because if Apple has issues with their servers you'll be without your music... and there will be a time when that happens. no server can be fault free and always up 24/7, 365 days a year, however in the tech world, u rely on that too much.
Not sure what would happen but if it works like Dropbox, you'll file would still be accessible from the wel, u just won't be able to sync if u have a reduced plan...
Its may be a local folder but its like its a folder that sync's auutomatically to the cloud..