Yes, once you purchase or install anything through Steam, obviously downloading it, it has to authenticate it through their servers. After this is done, you are able to play it in an offline mode for a time...which I believe is around a month, but after that it has to connect again to play.
I've had 2 games that came in disks for Steam, while on business, but they wouldn't even install till I was online and connected.
If you can stay connected, the cloud in this aspect isn't such a bad thing, but as soon as there are server issues or connection issues for a long time, you might as well play tic-tac-toe in paint!