Character height in Unity

You can, but the Global Gravity and Camera sizes would need to be adjusted to compensate.  I would usually recommend against it scaling everything to real world size, unless you had something in the background that relied on real world scale to work.

If you did however, you'll need to make sure each character's physics (weight, jump height and speed) are adjusted accordingly.  In theory, it should still work fine.  But I haven't actually tested this, so your results may vary.

You can use the Transform field to scale the character to the correct height.  I've been modelling characters in real world scale and setting the transform's scale to make them "game height".

As for the reason: UFE uses it's own Physics to apply forces to characters, and the current size of about 7 meters feels right for those values.  So even though UFE does lean on Unity for a lot of things, the average character height is the one thing it avoids.  It's not really an issue, since the game looks/runs fine once you understand you're not using any Unity physics and don't need to worry about scaling issues.

That's not an official explanation, but how I understand it to work.  If you're a regular Unity developer, not using real world scale can be a shock.  But when you realise you're not using any Unity Physics, you'll understand it doesn't really matter.  Even if your artists are modelling in real world scale, it's just a simple matter of either adjusting the scale on Import or the aforementioned Transform Position in hitbox setup.