The pre-amp is designed to bring your guitar signal up to a level suitable for amplification by a power amp. It's also where the the majority of tone shaping is done.
Your typical guitar amp has a pre-amp and power amp section. The tone controls on the front panel control the pre-amp circuits. The output of the pre-amp section usually goes to the effect loop "send" connector on the back of the guitar amp. This is where you would insert outboard effects. The output of the effects comes back into the guitar amp via the "return" jack which is connected to the power amp section.
You can also buy stand alone guitar pre-amps and connect them to stand alone power amps. Many people do this to acheive a particular sound associated with a certain pre-amp.
