I understand the confusion and I agree with you that it is not clear exactly how to set UI Extensions parameters definitions.
For instance parameters (i.e., variables that are set for each field on which the UI extension is used) those can be set in the webapp directly as shown in this screenshot:
In this case the UI Extension is the Shopify Products UIE and the instance parameters are the access token and the shopify graphql endpoint. These are set for each instance of the UI extension (aka for each field on which the UIE is used).
For installation parameters (i.e., variables that are set for each installation of a UI extension), those have to be set using the Content Management API with a
PUT request to
https://api.contentful.com/spaces/:space_id/environments/:environment_id/extensions/:extension_id and the body like so:
"name": "Marketo forms",
"name": "Lambda Function URL",
You would also make a similar request if you wanted to add more instance parameters or change any metadata about the instance parameters (name, type, required, options, etc.)