Free version? If so, then it does appear to use cloud based as the primary. It does, however, store a copy on the iPad that it opens if you are offline and then syncs when online.
Per one site I found:
"But the document is also retained, or cached, on the device, so if you go to access it in an offline situation—such as on an airplane—it is still available. Cached documents have a green "checkmark" over their document icon, differentiating them from offline-only documents."
I created a document with WiFi off and it saved it and allowed me to edit. Turned WiFi on and it synced. Turned WiFi off again and the local copy was still available.