It is all embedded in ##\mathbb{R^3}##. And you can play with different kinds of manifolds here. E.g. if you fix ##r=3## you get a two-dimensional sphere ##S^2## with radius ##3## where only the angles ##Θ, Ψ## at the origin are relevant to define a point on it. I deliberately chose ##3## only for the reason that it doesn't always have to be the radius ##1## as in most examples.
However, ##r ≤ 3## would define an entire ball of radius ##3## ; ##1≤r≤2## defines a spherical shell. All of these are embedded in the three-dimensional real vector space.
Let's take the sphere, i.e. ##r = u## fixed. Then ##U## is an open set on the sphere, and ##V## an open set in ##\mathbb{R^2}## because one needs only two parameters ##s,t## to describe it. ##V## is the image of ##U## under ##φ##.
But you wanted to have everything embedded so there is a third coordinate. As long as you are on the sphere, the manifold, this third coordinate is the constant radius, i.e. fixed. As soon as you investigate the sphere as part of the surrounding Euclidean space, the distance from the origin, i.e. the radius can be varied because you can leave the spehre. The parameters ##s,t,u## are nothing else than the (polar) coordinates of a point in ##\mathbb{R^3}##.
##Θ, Ψ,r ## above have been taken as the polar coordinates of a special point ##p## on the sphere ##S^2##.
##U## is an open set around ##p## on this sphere.
##s,t,u## are the parameters that describe a point in ##\mathbb{R^3}##, i.e. the coordinates.
##V## is an open set around ##φ(p)## in ##\mathbb{R^3}##.
The confusion comes likely from the fact that everything "lives" in ##\mathbb{R^3}## and therefore points of the manifold and those of the surrounding space look similar. My first example with the Lie group avoided such a mess.
And this is the essential reason why we talk about manifolds instead of embedded objects: The mathematics on a manifold doesn't need an embedding!
But if you have one, you must be carefully distinguish between things going on on the manifold and those in the surrounding space. The wording parameters or parametrization is basically meant as the coordinates of points on a curve on the manifold. E.g. ##γ : [0,1] → ℝ^2## where ##γ(t) = (t,1-t)## is the parametrization (by parameter ##t##) of the line segment from ##(0,1)## to ##(1,0).##