A shortlist is the set of proposals a client marks on Upwork as worth a closer look, a flag on the client's side of a job post that signals interest but is not an interview, an offer or a contract.
When proposals arrive, Upwork gives the client a few ways to sort them: shortlist, message, archive, or leave them where they are. Shortlisting moves a proposal into a separate tab so the client can compare a handful rather than scroll through all of them, and Upwork notifies the freelancer that their proposal was shortlisted. Nothing else happens automatically. The client may then message or interview the shortlisted people, send an offer to one of them, or close the job and hire nobody.
For the freelancer, being shortlisted is useful information and nothing more. It confirms the proposal was read and did not fail the first cut on price, badge or opening line, and it is a reasonable moment to send a short follow-up message, since the client is clearly comparing options. It does not return any Connects, it does not count towards anything on the profile, and a shortlisted proposal that is then archived leaves no trace.
The term is also used for the client's own lists of saved talent outside any job, which Upwork manages as talent lists; those are a way for a client to keep people in mind and send an invitation to interview later. In both senses a shortlist belongs to the client, and the hire, when it comes, is a separate step.
How Upwork Insights uses it
This term describes Upwork's own rules or product rather than a figure the index measures; the pages that do carry live figures are the stats and rate pages.