For example I might store blobs of data processed by my database in files that have the Base64 ID of the blob as the filename. If the filesystem was case insensitive, I’d be getting collisions.
Users probably don’t make such files, no. But 99% of files on a computer weren’t created by the user, but are part of some software, where it may matter.
And often software originally written for Linux or macOS and then ported to Windows ends up having problems due to this.
Since it’s end to end encrypted, Ente just sees some raw bytes, it has no way to tell if what you uploaded is an image or not. So in practice it supports whatever the client can display, so your browser for the web version.