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Standard

Create Single Material

If you have selected polygons then it will create a new material and assign those UVs to that material via a selection tag. All the UVs will be mapped from 0 to 1 and scaled to fill up the UV space.

If you have no polygons selected then it will create a new material and assign all the uvs to this one material.

Material Per UV Island

Creates a new material for every UV Island on the model. It will assign the UVs for each Island to its own Selection Tag. It will then scale the UVs so that the Islands takes up all the UV space ,between 0 and 1, on this material.

Material Per Polygon

This is a bonus feature and should be used with great care.

This will create a new Material for EVERY polygon on your object. It will also create a new textures at the resolution specified in the UVPaint Preferences and assign it to the color channel for this object.

Each of the Polygons UVs will be mapped to 0 and 1. A new Selection tag will be created that assigns the each polygon to its given material.