The files on my Google drive are actual files, which I proved to myself by disconnecting from the internet and viewing them. Maybe there is a problem with a specific Google app?
Yes, I have contents saved locally and in the cloud. But I'm not using Google Docs, just a my own files.
Edit: yes, I tried a spread sheet and won't work offline since there is no offline spread sheet app. There may be a way to make it work offline as a packaged app.