Install Obsidian and set up iCloud sync.
When installing Obsidian on macOS, the Obsidian folder is not created. This doesn’t appear to be expected behavior because that’s not what is described here: (help docs)/sync-notes#iCloud
iCloud Drive is enabled and working for other apps, but Obsidian does not show up as an application which can use it in System Preferences.
I’m using macOS Sequoia 15.4.1 (24E263) and Obsidian 1.8.10.
On Mac there’s no limitation when it comes to the location of your vault(s) 
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It’s just a folder somewhere on your Mac which like any other folders can live/be created pretty much anywhere (even in iCloud Drive, outside of the Obsidian iCloud folder… but these won’t be synced across devices).
Obsidian Desktop doesn’t need the dedicated Obsidian iCloud Drive folder to work…
Obsidian Mobile, on iPhone/iPad, is another story though and need to use the dedicated Obsidian iCloud Drive folder not only to store your vault(s) but also to sync them across devices…
Obsidian Mobile, on iPhone/iPad can’t access anything outside of the dedicated Obsidian iCloud Drive folder .
So, If you want/need to sync your vault across iPhone/iPad/Mac and the dedicated Obsidian folder doesn’t exist in iCloud Drive, you need to first create a vault from your iPhone/iPad with the Obsidian Mobile app… This should create the needed folder in iCloud …
Then, from your Mac, in Obsidian, you can use the Open folder as vault and open the vault you just created on iPhone/iPad within the dedicated Obsidian iCloud folder.
Once you have the dedicated Obsidian iCloud folder, you’ll be able to create other vault(s) from your Mac in the dedicated Obsidian iCloud folder and have it/them sync across your devices.
At least, that’s how I set up the iCloud sync when Obsidian Mobile was released 
I’m mainly using it for backup rather than sync but I recall previously that Obsidian automatically created an iCloud folder with an Obsidian icon. I also get the impression from the documentation that this is the expected behavior, but that doesn’t seem to happen.
I didn’t file a bug report because it’s not actually blocking me but it does suggest to me that there’s an uncaught regression or perhaps the documentation should be updated to reflect that the user will need to create a folder rather than find an existing Obsidian folder.
I can’t remember having Obsidian Desktop create the very specific Obsidian iCloud Drive folder (as it doesn’t need it)… Mobile (iPhone/iPad), yes (as it’s required), but not Desktop 
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But then, that was quite some years ago 
and I could just be wrong 
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All I know, is that when I tried to sync a vault (for the 1st time) between my devices (Mac/iPhone/iPad) I used Obsidian Mobile first (at that time) and then only my Mac …