PREQUALIFICATION simply determines the maximum purchase price of a house that the buyer is qualified to purchase, based on the income and debt information he or she provides verbally to a mortgage professional. This prequalifying information the mortgage professional provides is not a commitment to lend the money! All the information provided by the buyer must still be verified.
PREAPPROVAL is actually a commitment to lend the amount of money specified, assuming the property chosen meets the lender's criteria. The loan process is basically complete when an application has been taken, including all required verifications, and usually without the property information being known. A "Preapproval Letter" is issued by the lender.