Fixed it. Go to installed packages and click on configure next to salesforce cpq package, then make sure attachment target is selected as Quote.

Now in Quote record, click Generate Document and press Save. Quote PDF will be saved in the notes and attachment related list section in the Quotes related tab.

"Notice that the Quote Documents related list is here on the opportunity too, however it can only be accessed by users with a CPQ license. For everyone else there’s the Notes & Attachments related list, which shows files for each version generated. Files are shown here because the package-level setting Attachment Target is set to Opportunity for your CPQ-enabled org. Attachment Target can be set to Quote to add it to the quote’s Notes & Attachments list. Or, set it to Document Only to keep the PDF accessible only through the Quote Document record."

See details here: https://trailhead.salesforce.com/en/content/learn/modules/quote-templates-in-salesforce-cpq/get-started-with-quote-templates-in-salesforce-cpq