Because the person you are talking to might not understand you then.
"Hey, Ricky. There's someone on the phone, but I can't understand him. I think he's speaking English. You understand English, don't you?"
"Ja, ich verstehe Englisch."
"Say what? You know I don't understand English. What did you just say?"
stehen means "stand", but ver- has meanings such as "wrongly" or "completely" which don't really fit to the "stand" meaning to give "understand".
A bit like the English word, really; to understand something does not (seem to) have anything to do with "under" or "stand".
Because there's no reason to do so.
We capitalise Sie (and, optionally in letters, Du and Ihr) for politeness, and we capitalise nouns, but capitalising ich would be the opposite of polite.
Also, ich has three letters, rather than just one as with "I" in English, so we don't need to capitalise it so that the word doesn't "get lost" among other letters in medieval manuscripts.
I put yup and yeah. And those are wrong?
Well, they're not accepted on this course -- they're considered too colloquial.
Use "yes" on this course.
Not "yup, yeah, yah, ya, yuss, yuh, yuh-uh, uh-huh", or any of the dozens of other colloquial synonyms.
Similarly, nein is "no", not "nope, nuh-uh, nah" or anything else.