There are a few reasons carriers charge more for residential delivery than they do for commercial delivery.
Businesses are often near each other, there are fewer of them in town than houses, and they receive more packages than houses do. As a result, delivering to businesses means fewer stops and less driving around.
Also, businesses generally always have someone present during the day to accept the package, whereas houses are often vacant during the day, which slows the driver down, as he may have to leave a note and take the item back to the warehouse for a delivery attempt another day.
There are exceptions to these generalizations, of course, but the carrier has no way of knowing if they will have any delivery issues at any individual address, so they have decided to provide a discount to commercial delivery addresses. This also encourages people buying things for themselves to get them delivered to their workplace, reducing delivery time for the carrier.
According to this UPS page, residential delivery is defined as a delivery to a building that is a home. Even if there is a small business operating inside the home, UPS still considers it to be a residential delivery. So you are not supposed to select “commercial” unless you are getting a delivery to a business location that is not also someone’s home.