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They are defined in the [Desktop Entry Specification](https://specifications.freedesktop.org/desktop-entry-spec/desktop-entry-spec-latest.html#exec-variables). In fact there are also `%f` and `%F` options.

They tell the desktop manager how the program handles multiple files. Like if I select a bunch of files in Dolphin and select "Open with Firefox".

The small `%u` means that the program expects only a single argument at a time. So invoking with multiselect is actually launching the program several times, once with each file as an argument.

Capital `%U` means that the program can take them all as a list in a single go.

`%f` and `%F` is just the same thing but stands for local **F**iles whereas U is for URL, which works for local files also. This is probably why you don't see much f's.