UE4 got object and class management system and all objects are are part of it it needs to inherent from UObject, It’s part of reflection system so you are not forced to use UObject but then your class won’t be visible by the engine and won’t be able to be used in many engine features (most impotently Blueprints), most impotently garbage collection won’t see it and won’t collect it, such classes need to be manually managed in memory with “new” and “delete” (like in raw C++ code), even so i seen uses of such classes in engine code, whole Slate UI framework are outside UObject (thats why it need UMG to be used in blueprints). So for UE4 UObject is most minimal object class, like pixel is most smallest fragment of image.
Main difference between UObject and AActor, as UObject it’s just most minimal object code, it does nto have code to place it on the level and thats what AActor have (keep in mind AActor is also UObject class), it has code that ties object with UWorld a world instance and AActors are also managed by UWorld class not only UObject managment systems. AActors themselves are not really physical (i think you already notice that) what makes them physical is components and root component determence it’s location, all transform functions in AActor relay on root component and they will do nothing without root component, not to mention not all components are physical, only USceneComponents, there movement components that controls movement of actor, so components are more like plugins for actors. Also impotent difference between AActor and UObject (and reason why nonphysical classes like AGameMode ot APlayerController are AActors) they are integral part of world instance, they relate to gameplay, if world instance get destroyed (you load next level for example) all AActors objects that are tied to that world instance will get destroyed with it, so all AActors are designed to be resetable (thats why AGameMode is a actor, it’s tied to world and resetup it self when level is started as all other actors, there UGameInstance class that functions as persistent AGameMode). Because AActors are tied to UWorld instance, it a lot easier to interact with the world from that class using () function, also impotent to know because AActors is part of game state (state of world instance), they are only classes that state can be replicate, because they replicate they only one that can be played on demo recording and as well as saved and restored in game saves.
So in short, everything that is tied to single world/level instance, tied to game state.need to be AActor, everything global persistent with game process and independent from world instance (but it can operate it if needed) should be UObject.
Good example is AGameMode and UGameInstance, AGameMode controls manages current world instance and it dies with it, UGameInstance (which is normal UObject) exist beyond world instance and look over all world instances that will be created (usally by informing and controlling AGameMode of current world), also functions as a memory so new world instance knows what happened in last one and beyond it.
You might come to conclusion that UE4 is designed more for multiplayer matches then story expirance, which way it is.