If you're using POP3, all your email is being stored locally. Only if you select the option "leave mail on server" will it be stored in the cloud.
Contacts are also stored locally, the only way it's in the cloud is if you're using IMAP or another enterprise level protocol.
OST is a new file format meant to frustrate users and IT workers. It's called the online cache file, when you use IMAP or Exchange protocols, but Outlook also uses it with offline services like POP.
In your mail profile settings (from control panel->mail->email accounts, not from outlook), you should be able to set your "delivery destination" to a PST file of your choosing. The OST file will still exist, but is mostly useless.
This is the screen you're looking for:
I can't change my destination because my work email is an Exchange account, but you will be able to.
