I thought it was only the formal Sie, but now I see du and dir capitalized too, just wondering.
Normally, we write “dir” and “du” beginning with a lower case character. But in letters and E-Mails you may also write them capitalized (as you had to write it before 1996).
In 1996 we had a spelling reform, which prohibited the use of capital letters in “du” and “dir”, but later on - I think it was in 2004 or 2005 - the orthography has been revised.
Since that time you may again write “Du” and “Dir” capitalized (in letters and E-Mails).
But it’s always correct to write them with small letters (except at the beginning of the phrase, of course)
thanks for clearing that up, it just seems odd to me.
Nothing odd, just another level of formality (or politeness). I’m pretty sure I’ve seen capitalized “You” and “Your” in letters or legal documents. It’s not that uncommon in Swedish either.
The odd thing (if any) is that there is/was a law against writing “du”/“dir”. Only in Germany, I suppose… 
It’s a way of being polite to someone with whom you are on familiar terms
Ah Jeff, you got there just before me!
That would be completely wrong in English, you should never ever use “You” and “Your” in informal situations as a way of being polite in English. You can be polite in your choice of words not by using “You”, whereas you can be polite by using “Du” in German.
Legal documents are quite another matter as any word can commence with a capital depending on the context, even Client, Company etc etc.
@jeff: I admit, the word “prohibit” maybe was the wrong choice. So you wouldn’t get arrested if you wrote “Du” instead of “du” between 1996 and 2004. (I was, of course, only referring to the grammar rules and the correct spelling).
But if you consider the increasing amount of restrictions (esp. concerning the music industry), it’s possibly only a matter of time when you will get prosecuted only for a wrong orthography (particularly if you imitate the wrong spelling of another person, who might have the copyright on his creation). 