Normally this symbol would indicate to knit into the stitch 2 rows below, but not for this pattern.
For the U2 sts you wouldn’t be knitting 2 below but rather randomly pulling up a loop from somewhere near the current stitch (so the loop will be approximately 2 sts long), to create a randomized falling leaves effect, purl the next stitch. 
On the next row k2tog where one of the sts is the loop from before, this is not marked on the chart. 

Like U2 this symbol would generally indicate to knit into the stitch 5 rows below, but not for this pattern.
For the U5, like the U2, pull up 5 -7 loops at random from around the branch below, you can work the k anywhere within those sts or before or after. 
I mostly did this: working from right to left, pull up 2-3 loops to the right of the branch, k1, pull up 2-3 loops from the left of the branch. 
I use both my RN and LN to make the loops but as I work I pass any made with the LN to the RN. 
On the next round you will decrease back to a single stitch, this will be marked on the chart there are a few ways to do this (stitch symbol is for 5 loops, but they apply to as many as you want)

For each stitch you will make 2 loops, I used a spare needle (in this case my cable needle) to help keep them even and lessen the strain on my hands.
For the first loop, knit into the st but don’t drop the original stitch, *bring the working yarn to the front and around the spare needle, bring the working yarn to the back and knit one, again not dropping the original stitch, then repeat from * once more then drop the original stitch For the first st on RS row, (the butt end of the sheep) slip the 2nd and 3rd sts from the RN over the 1st. For the ones in the center, sl the 1st st from RN to LN, pass what is now the 2nd st on the RN over the first, then pass that stitch to the LN. Pass the 2nd st on your LN (the one slipped at the beginning) over the second. Like a central double decrease. 
On the WS purl into the original st and bring the yarn to the back to create a loop. 
After each row where you have created loops, go through and take the two loops from one stitch and pull them away from each other, this will help tighten the stitches and prevent them from coming loose. I would recomend doing this frequently especially if one loop seems to be getting shorter. 

 This is the bobble that will be the head of the sheep, I hate doing bobbles with knitting needles so this will be done with a crochet hook.
If you knit with the yarn in your RH, switch it to the LH while crocheting. Working into the next live stitch on your LN, make 5 double crochet stitches (yarn over hook, pull up loop, yarn over hook and pull through two loops then yo and pull through 2 loops again.) If you are using metal needles I would recommend putting end caps on them for this part so you don’t lose any stitches. 
Put the live loop onto your LN and pass the yarn back to your RH, you’re now going to pick up a stitch with the working yarn from the top of each dc going from right to left as if to purl (basically purling into the top of each one) and put it on your LN. There is going to be some back and forth with the stitches here, each sl st is purlwise with the yarn in the front,  sl the next 2 sts from the LN to RN, pass the 2nd st on the RN over the 1st, sl the next stitch to the RN, then take the 2nd stitch on the LN and pass it over the first, sl that stitch to the RN and continue knitting across the row. On the next row, do a central double decrease with the three remaining stitches from the bobble. 

This is the sheep tail and is much easier than the head. Set up (yarn in LH, end caps on ect) then make 3 hdc into the next stitch, put the live stitch onto the hook for safekeeping and insert the crochet hook into the 1st hdc you made from the back to the front, take the live st and pull it through then place it on the RN to gather the hdc.