My understanding of it is that the pre-load acts as a ride-height adjuster - by pre-compressing the spring (adding pre-load) you increase the distance between top and bottom shock mounting points. As the wheel is (hopefully!) in contact with the ground this raises the seat height (although it looked like there was only about 10mm difference between max and min pre-load).
So, say, if fat-bifta rider causes 10mm static-sag, he/she needs to set static-sag to match. If f-b rider & equally f-b pillion* sit on bike, the bike will sag more, hence the pre-load needs winding on towards max.
The compression damping adjuster (at the bottom of the shock) alters the speed of damping. Keep it softer if you're a svelte, genteel, easy-going rider, and keep it harder (pfnar, pfnar (sorry, couldn't resist

) if you are f-b rider and/or you take a f-b pillion*, or you like riding hard.
Personally, being under 11st, I find that min pre-load and 1/2 turn off max compression suits my riding - so it looks like my bike was perfectly set up for me and I didn't even know it
f-b pillion* - this could also refer to some of the 'larger' pannier/top-box combos that some seem to prefer
Andy