For Mac OS X, what criteria should I use to decide whether to store a document or file in iCloud or on my local machine? What are the tradeoffs and considerations to be most aware of?
iCloud document storage is best used for documents you're going to need to access for things that you're likely to need in a single application, but on multiple Macs. If you're likely to need to access a document from in multiple applications, or don't need it synced between multiple Macs, local storage makes more sense.
The documents you store in iCloud from a Mac are essentially tied to the application you save them with. For example, if you create an image in Photoshop and save it to iCloud, you won't be able to later view it in something like Preview without first opening it in Photoshop, then copying it to another location that Preview can access (either local storage or in Preview's iCloud storage).
The iCloud vs. Reality section of John Siracusa's Mountain Lion review on Ars Technica goes into good detail on this as well.