It can take a while for albums to synchronize with iCloud -- I've seen the albums not appear until well after all the pictures, and vice-versa. When the albums appear, they'll have the right pictures in them.
By default, Photos keeps its own copies of the original picture files. You should double check Photos' Settings>General

to make sure that "Copy items" is checked. The original files are never altered-- Photos records any edits you make in its database and then applies them when you view a picture. The filenames are changed to unique identifiers, though, so you don't have eight different IMG_1234s, and so on, but the original names are stored in the database and displayed from there.
Frankly, it's a bad idea to keep all your eggs in one basket-- do you have a backup?