Archiving issues (or projects) will not affect your storage space. Archiving removes nothing; the data remains on the disk. It's just found differently.
You're using 125Gb now; if you archive 100Gb worth of issues, you'll use 125Gb afterwards.
To bring disk usage down, you need to delete stuff completely.
Now, most of the issue data (think "fields") is held in the database, which is quite an efficient way to hold data, and if you think about how much data there is on an issue, it is also relatively small. Imagine you've got 1000 words stored on an issue (including names of people, dates, etc.); the data is probably already smaller than the characters you see. Some fields are shorter than their displays - for example, an option in a select-list looks like "Mr Flibble says 'time to die'!", but all that has been stored on the issue in the database is a 5-6 digit number, which is a lot smaller than the text (Jira is looking it up for display - the options table is keyed off the 5-6 digit number and contains the text that gets displayed once)
That means that the data on issues is relatively small. I've seen Jira systems with hundreds of thousands of issues and their entire database storage ticking over on a few gigabytes of storage.
On Server, you can configure Jira to keep all the logs and backups, which means it will happily chew up lots of space as it runs. The default installs now at least do a bit of a "log rotate" on the logs, and the recommendation to turn off the twice daily XML backups (backup the database instead) solves the other problem (although I tend to stick log rotate on that directory to, only keeping the last 3-5 backups because admins can still run them if they want)
On both Server/DC and Cloud, the one thing that will be eating all your disk space is attachments.
On server/dc, you have the option of doing simple disk space analysis - the attachments are held in a simple directory structure and an admin can easily tell you what projects or even issues have attachments chewing up space. They can also physically delete the files if you don't mind Jira showing you "file not found" icons when you look at issues that have had their attachments deleted.
You have no OS access on Cloud, so you can't do that. I'm afraid all you can do is trawl through your issues to look for large attachments and consider whether you can delete them or the issues to which they are attached (for audit reasons, I usually go after deleting the attachments on resolved issues over a certain age, and adding a comment to say "admins deleted attachment (x) because we were low on space)
Oh, and the 250Gb limit is not a "hard" limit on Cloud. If you stray over it, nothing will stop working, you start getting Atlassian asking you to upgrade to the next tier, so you get the next band of storage allowance. You can ignore that for a long time, but they will eventually change your subscription to cover it if you carry on growing.
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