I've been trying these features out on two macs for the last couple of days and I think the system is both set up logically and seems to work well. Of course, with cloud systems one error and things could go catastrophically wrong so the system must have had a lot of testing.
But - providing you are aware that you need to setup the 'master' Mac first - then the system works well. My use of two systems is fairly regular: one at home, and one when away. Downloading the the Documents from the main to the secondary Mac seems to work well at keeping that single set of docs in sync. I had to delete my copies of the same doc from the second Mac, which caused a few hours of sync setup before things settled down, but what was going on was clear and I don't think a user should make a mistake unless they are being too hurried.
Because of my workflow I don't tend to have documents open on both computers at the same time, but I did a few tests to see what would happen if that was the case. And what happens is a "Modifications aren't in sync" window arrives, allowing you to choose which version of the doc you want to keep - which thankfully also allows you to keep both docs if you want, in case you have changes in both. It's rather similar to the way Evernote behaves if you have conflicting notes, and rather easier to deal with. You only have to deal with the issue when you open the doc, but I do think large numbers of conflicts would be a real problem, not that that should happen. While I certainly wouldn't recommend it as the best way of keeping projects in sync, even changes to a git repository seemed to transfer quickly and smoothly between the two systems.
I'm happy enough with the syncing and will use it for docs that I don't mind being in the cloud. I have created a second non-Cloud documents folder as well, for things I want to keep local only. As for Time Machine and other backups - I'm going to download the docs to both systems and make sure they feature in both sets of backups. I also rather like the way the existing but not downloaded files are represented in the Finder window - and the way this is achieved by using a hidden file with a .icloud extension. Best not to mess with those files too much, I think.