Preload adjusts the force required to start the fork moving along its travel. It is usually used to set sag, or how much the fork compresses with your weight on the bike. Common sag settings are around 15-25% of total travel.
A common misconception is that preload affects spring rate. This isn't the case.
Example: If your fork bottoms out excessively, like the spring rate is too light, cranking down the preload knobs won't help. Higher rate springs will be needed.