What does the "modify/delete USB storage contents" permission really mean? What does the modify/delete USB storage contents permission really mean? Does it grant access for the application to read, modify and write all the data on my USB storage? Maybe it is this only limited to a subset of that data (e.g. only data written by the application itself)? Or does it mean something else entirely?
If you are familiar with the concepts of read and write permissions on various PC platforms, that is pretty much the same as what is going on here. You are giving the application write access to your "external storage" Which could be an SD card, or some storage space that comes with your device.

That permission indicates that the application is able to create, modify, or delete any files that reside on the SD card (or the non-removable storage space that the the OS treats most like an SD card).

So it could download a file from online and manually save it to your SD card. 

It could generate its own image, text, audio etc.. file and save it to your SD card.

It could delete any file on your SD card.

It could find a file that already exists on your SD (even one with nothing to do with the app) and make changes to it.