that is the only option icloud has unfortunately
photos that are on icloud will show on your phone but only a low resolution thumbnail is actually on the phone. this is what the message is referring to. these thumbnails will either be removed from the phone or you can download the full image when i cloud photo library is turned off. there is no other option.
any photo that is stored locally on the phone only will remain on the phone everything else will remain on icloud.
