The cap
One week’s rent, calculated on the rent you are actually asking. A holding deposit is not a way to take a larger sum early; the tenancy deposit rules govern that separately.
What it is for
It takes the property off the market while referencing runs. That is the whole purpose, and it is why the rules on keeping it are narrow.
Repaying it
It normally has to be repaid or put towards the rent or deposit within a short, fixed window. There are limited grounds on which it can be kept, and "I changed my mind about them" is not one of them.
Why record it
Because the argument, when there is one, is about what was taken, when, and what was said at the time. A dated record settles it in a sentence.