This means everything that leads up to the first moment of recording. There may be some planning and arrangements of crew and permits, there may be development meetings. There may be a casting session if the project involves actors, and there may be scriptwriting costs.
We basically estimate the amount of time required for the personnel involved, and during the preproduction phase there is very little in the way of equipment costs, if any.
A well planned project usually saves money over winging it in the field, so it's worth allocating sufficient resources to "pre-pro."