In laymans terms
preload, a bike is designed to a certain ratio of forward to rear weight on the tires, your weight and how you sit on your bike affects this so we have preload, the higher the performance standard of the bike the more places we can adjust this. (notice a cruiser may have no or just rear preload adjust ment.
Properly set up the preload makes the SAG of the bike stop at a certain place. In other words it preloads the springs to stop so the ratio front to rear weight is correct.
It has nothing to do with spring rate, that is a seperate thing that requires you to change the spring. You need a mechanic used to doing spring rate changes with the ability to have many springs to get that right. And yes it is important if you plan on racing the bike, (or maybe have a under sprung rear shock such as the FZ8). But adjusting the preload to increase springrate is counter productive to getting good performance no matter what anyone claims.
Damping is increasing or decreasing the rate that the oil flows in a shock to dampen the movement of the shock and control the spring. It is not adjusted until the spring is corrected because as soon as you adjust the spring or change it out the damping needs to be set for that setting.
However, most guys could never tell the damping is wrong as they do not ride hard enough. As set from the factory damping will work for most riders. it is when the shock is changing (or extremely close to changing) the direction of travel that damping needs to be set the most and that is when you can feel it. Most guys learn to feel it first by what is called chatter. when the bike is at full load in a curve the front tire seems to chatter. It is changing direction before the spring is fully loaded because the damping is set to hard and the spring starts to osculate. Now what compounds this is we have both rebound and compression damping so we need to know which one and how much to adjust. and which way to adjust it. Most guys go the wrong way.
However, good communication to a mechanic that is used to adjusting this and being able to have an area you can replicate the eact conditions such as a track are needed to get this correct.
I would say 75 percent of bikes never get preload set and less than 1% get the spring rate corrected.
I would say that 75% of all bikes never get the damping set off factory and those that do less than 1% are correct, the rest are just placed somewhere because the rider has no clue as how to get it correct. Most think harder is better which is wrong. Correct is so it flows smooth as silk and does not chatter, squirm, wiggle or feel anything but planted during the entire stroke and return of the suspension. I know the factory setting is a average setting, but that setting is far safer to ride at than a badly adjust setting.
Normally, when setting up a suspension, correct springrate is determined first, (surprisingly many times that is stock, I am heavy so rarely does that work for me) then preload. after that damping.
Professional racers change spring rate, preload, and damping for every track. That is how sensitive it can be. As well how adjustable it is to get it correct. So as a layman, finding an average because we have all kinds of condition changes each ride, is better than trying to fine tune a suspension.