Introduction
Lighting in UDK is built around real-time requirements. Epic Games provides the neatest explanation of the features that UDK includes in terms of Rendering, Shaders, and "Eye-Popping Lighting and Shadows" on their front page at http://www.UDK.com/features.
Illuminate
UDK gives you all the options to perfectly light any scene. Ambient occlusion, per-pixel lighting, fill lighting, and fully dynamic specular lighting and reflections are all possible.
Unreal Lightmass
Unreal Lightmass is an advanced global illumination solver, custom built to fully take advantage of all that Unreal Engine 3 has to offer. Light your world with a single sun, give off soft shadows, and let the diffuse inter-reflection (color bleeding) do the work.
Detailed Shadows
Advanced shadowing with support for three techniques:
Dynamic characters casting dynamic soft shadows.
Ultra high-quality and high-performance pre-computed shadow masks.
Directional light mapping with static shadowing and diffuse normal-mapped lighting...