You don’t need to use that command, as discourse-setup will do it automatically
You don’t need to create /var/discourse as the git clone https://github.com/discourse/discourse_docker.git /var/discourse command will create the directory if it does not exist.
I have updated the instructions in this PR:
https://github.com/discourse/discourse/pull/8102
It has been suggested that you are using Cloudflare in front of your Discourse (orange cloud is on). Is that true? Use Cloudflare for DNS only or it will cause you problems.
Perhaps INSTALL-cloud and/or discourse-setup should warn against that too.