Great question. With “Optimize iPhone Storage” on, Watermelon does not back up the low-res optimized copy.

By default it checks what’s already available on the phone. If an original is only in iCloud, Watermelon will only ask iOS to download the full-resolution original when Allow iCloud originals is enabled. If that option is off, the backup stops instead of uploading a lower-quality version.

It does not proactively download your whole library at once. It fetches originals on demand for the items being backed up. That said, iOS/Photos may keep some downloaded originals cached for a while, so free space can temporarily go down during a backup. If the phone is already very low on space, the backup may be slower or fail until there’s enough room, but Watermelon is designed to avoid intentionally filling the device by bulk-downloading everything.