It was about encryption ciphers, when the US had export restrictions on key lengths. U = USA = 128bit, I = International = 40bit, N = None. Nowadays the U is another vestigal piece of the UA string.
Quick search answered my own question - 'U' indicates USA; As a result of cryptographic export restrictions, different levels of security were shipped in early browsers: U(SA) = 128bit, I(nternational) = 40bit, or N(one).