Using iTunes Match when library lives on external hard drive

iTunes Match only covers music, so if your library has any other content such as audiobooks, podcasts, movies, etc. they're going to be left behind if you switch computers or reinstall your OS without backing up and then restoring the library. I would always recommend keeping a local version somewhere, even if it is on a drive you don't have permanently connected. See also Move your iTunes library to a new computer - Apple Community.

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There seems to be different ways this works. I use iTunes Match on my iPhones and iPad and PC and never have had an message to "create a new iTunes library" or even manually checked iCloud Music Library as mentioned above. There is a support article here that says something about if you check iCloud Music Library, all the existing music on the local device will be deleted. I also keep all my music (after first adding new songs to the iTunes Library on my PC) on an external drive which is rarely connected. The way it reads about iTunes Match, it makes me believe since all my music is on iCloud, I do not need to do anything other than stream it from iCloud. I know I don't and I have not even restored any iTunes Library when reinstalling Windows and all seems ok with my music streaming from iCloud. (Except for the songs that go missing from Tunes at times.)

Is there any reason to have a local iTunes library when my music is all on iCloud with iTunes Match?

I have read complicated information here about the iTunes Library but never any reason it is necessary if all the music is stored on iCloud via iTunes Match. In fact, I have read on this support site instructions to keep a copy of a song imported into iTunes within the iTunes folder inside the My Music folder. This really creates a problem with duplicate files for every song.

Does iTunes Match keep the music on icloud or not? If yes, then is there any reason to be messing with iTunes libraries?

Thanks for any advice.