If you open Keychain Access on your Mac, you'll see there are separate keychains called "login" and "iCloud". The login keychain is local, its contents won't be synced to other devices.
The login keychain is where the passwords for local applications and encrypted volumes, and some security certificates etc. are stored. When you encrypt a volume, you get an option to store the key to the login keychain. The stored passwords are read from the local keychain every time you mount the encrypted volume, and Time Machine also reads the keychain automatically.
You do not need iCloud keychain to store the encryption passwords/keys. I explained how to do so, because I thought you were asking if it was possible to sync the keys between different computers or locations. Sorry for the confusion
iCloud keychain is a well secured service, but it's still an on-line service.