The UPS module uses the Rate and Services Selection XML Tool to get shipping rates published by UPS. It requires a username and password that is used to log in to www.ups.com as well as an Access Key to use the tool. The process to get this information can be started here. Click on the "Register" link to apply for a Developer's Key, which can be used to get an Access Key.
The quote method can request quotes from either the test or production environment on UPS's servers. Use the testing mode until you are fairly certain no more errors occur when requesting quotes. The production environment probably has the most accurate information about shipping rates.
The rest of the settings deal with the way UPS handles your shipments. The more Übercart knows about this, the more accurately it can get quotes from UPS.
UPS does not provide all of its services in every location. An error may be returned when a customer gets a quote and they are not eligible for a service because of their location.
The "Customer classification" field refers to the kind of customer the store is to UPS, and should probably match up with the Pickup type.
Negotiated rates, Assuming Residential locations, and the Markup all affect how much the returned UPS rates will be. The "Product packages" also affects the shipping price because a single package is cheaper to process and transport than many boxes of equal total weight.
Übercart automatically converts the product dimensions into the specified measurement system when it sends the data to UPS. Choose whichever is commonly used in your country: inches/pounds for US, metric for nearly everywhere else. Canada can use either.
