Getting prequalified means that the lender makes an estimate of how much you will be able to borrow based on your assets, income, and debts.
The lender checks your information and gives you a general estimate of the amount of the loan and the monthly payments.
With the preapproval done, the lenders review some basics about your finances and provide you with an official letter that states that as long as you meet certain requirements, you will be approved for a specific loan amount and program according to your needs.
Most of the times the sellers require the preapproval in order to sell you a home. Being preapproved gives you not only more confidence, but also brings you a step closer to your dream home.