How do I remove an outdated app from iCloud to download the latest version on iPhone?

Apps are not stored in iCloud. When you download from the App Store you are getting the latest version. You may have data for the app stored in iCloud and to delete that you would have to go to Settings > [name on top] > iCloud > Manage Account Storage, and tap on the app to delete its data.

What are you trying to accomplish where you do not think you have the latest version of the app?

Apps are not stored in iCloud, just downloaded again from the App Store. If there is a newer version, that would be installed when downloaded or updated.