I had a similar issue trying to free up space on my iPhone. At first I thought it was the trick Apple uses to force you to download and update the iOS. But it's not. It's the crappy storage on a 16G iPhone.
My first recommendation is to upgrade the phone to a larger capacity iPhone, but if that's not an option (i.e. tight budget and/or company phone) there is another way to limit the Photos app's impact on your storage.
This background info is necessary. In addition to a 16G iPhone, I also have a Mac computer, both are for work. I had iCloud Photo Library enabled on both devices, which means all my photos had been synced to iCloud. In order to free up space (on the iPhone, not iCloud) yet not lose all my photos in the iCloud Photo Library, I had to do two simple tasks, consecutively:
On the Mac, open Photos>Preferences and enable "Download Originals to this Mac." This will keep the Photos from being lost after step 2. If this was not already enabled, it may take some time to download the original photos and videos, relative to how many you have stored on iCloud Photo Library. Also make sure that your WiFi is working and that it is enabled on your iPhone.
ONLY AFTER STEP 1 IS COMPLETE: On the iPhone, open Settings>iCloud>Photos and disable "iCloud Photo Library." This will remove all photos from the iPhone, but as long as you follow Step 1 first, you're okay. Not sure about folks without a Mac, but I imagine the concept is the same.
Once these steps are completed, you will now have removed the photos from you iPhone. Any new photos will no longer sync to your iCloud Photo Library automatically. You will need to plug the iPhone in to your Mac and upload it to the Mac the old-fashioned way. The Mac will upload them to iCloud (if enabled).
If you have a larger storage capacity iPhone, it is a little more convenient to leave this feature enabled so that the photos can sync wirelessly via iCloud. But if you have a 16G iPhone, it will only set you back if you're having the storage issues that come with a 16G iPhone.
Hope this helps! Please comment if there's a better way....I'll use it myself!