In English, both in computers and under the blue ceiling, title-style capitalization (capitalizing first letters of nearly all words) is for titles, and sentence-style capitalization (capitalize only the first letter for the first word) is for sentences. Titles generally include headers for your documents, pages, and sections therein and labels for controls. They are often sentence fragments lacking either the subject or predicate. Sentences are “regular” content, each generally including a subject and predicate, although sentences in the command sense often have “you” as the implied subject.
There are some gray zones. Style guides provide specific guidelines on when to use each. For example Apple recommends title-style for menu names, menu items, buttons, and any label that isn’t a full sentence. Apple recommends sentence-style for messages, check boxes, and radio buttons, even if they aren’t sentences.
However, style guides don't all agree with each other and sometimes they change. For example, the Windows UX Guidelines used to recommend title-style capitalization for buttons and menu items, but now recommends sentence-style capitalization. Title-style capitalization is only recommended for tabs, window titles, pages, programs, folders, and other “major components.”
In these gray areas, capitalization style is mostly a matter, of, uh, style. Sentence-style capitalization gives your app a more conversational tone, as if the user is interacting with an agent rather than a tool, which may or may not be a good idea in your case. I suspect title-style capitalization can make it easier to scan for key words in labels, but that’s just a hunch.