w2k would be a good choice for an OS. The CPU is important since UT is
quite CPU heavy, but take note that the dedicated server doesn´t render graphics, so anything like a P2 400/P3 500 will do fine. RAM
is more important as it is the factor that influences your map loading times most. 256 MB would be great. UT is not so RAM depended(128MB for one client is enough) but take note that w2k eats RAM for breakfast,lunch and dinner. So more then 256 is good, but not THAT important for a dedicated setup.
Put it on a fast HD!
EDIT: About your question: A dedicated server is, as described, a machine that runs UT maps and packet distribution in the background.
It will be a symbol in your tasktray. You CANNOT play on this machine.
To play on the machine, just setup a normal game(HOST).
Frag on!