Yes indeed they do. They are mutually exclusive. Here's why:
Forget your preconceived notions about what the Photos app is supposed to show you.
The Photos App has a Photos tab that shows you......wait for it.......Photos (and videos). Its all of them. Everything your camera has ever taken. You might call it....a CAMERA ROLL.
It also happens to be directly linked and synced to iCloud (assuming the elusive iCloud Photo Library is featured on your device). There is no distinction between whats on your device and what is stored in the Cloud. Delete it, it is deleted. Everywhere. There is no manually managing local and cloud storage separately (nor should there be).
This is finally THE solution (or will be, whenever iCloud Photo Library is rolled to the masses).
And to top it off, there is a genius option to Optimize Device Storage. In this mode, only thumbnails/low resolution copies of photo/video are stored on the device itself, and are instantly "fetched" in full quality from the cloud when you choose to view one.
It doesn't get any better than this. Unfortunately, many iOS 8 users do not even have access to iCloud Photo Library. Apple botched this release by missing the shipping date on this feature. Otherwise, it would be a lot easier to explain to people that they are waiting on a missing feature that completes the puzzle.