I would say that U1 is the default jutsu used by people when they press Y/Triangle once, and then B/Circle, resulting in the weak Charka attack, such as Rasengan, Raikiri, Fireball etc. U2 is the ultimate jutsu from pressing Y/Triangle twice I would imagine.
As for Kakashi, I wouldn't mind playing as him. I don't usually play as Kakashi, but he seems fun to play as. I know his charged U1 attack is pretty good against puppets, since his stream can pass through the puppets and straight to the puppeteer, which is good I guess. I've just never really gotten around to using him. x(
What about Yamato? What are people's views on him as a fighter?