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A .UPKG file is a simple text file that the UnrealScript compiler will look for to know what initial PackageFlags to use for the compiling package, the file must be placed within the Classes folder.

The content of a .UPKG looks like <uscript> [Flags] AllowDownload=False ClientOptional=False ServerSideOnly=True </uscript>

this would flag the package as don't send the package to any clients that request it from the server and flag the package as ServerSideOnly which means only the server may load this package.

The default flag values are <uscript> [Flags] AllowDownload=True ClientOptional=False ServerSideOnly=False </uscript>