Translation:It is rotting
The "u-" prefix can mean the second person singular "you", as you noted.
However, it is also the subject prefix for singular "u/n" and "m/mi" class nouns. As something is rotting, it is not very likely to be a person, so it's assumed to be an object.
Mti unaoza - The tree is rotting
Unaoza - It is rotting
See my reply to the reverse sentence.
Prefixes (and object infixes) for the main non-M/Wa noun classes (relevant class in bold) are:
U- -------M/Mi, U/N
I- --------M/Mi, N/N
Zi- -------N/N, U/N
If you come across pa-, ku- or m- they are part of the place classes of nouns. I've still not quite gotten a grasp of those. I think pa- is for specific locations, ku- is general and m- is inside a location, but I might have mixed them up. I don't think the prefix version of these are are really covered in this course.