Pre-Approval vs. Pre-Qualification

Pre-Qualification: Answer some questions online or over the phone about what you make, what you spend, what your credit is like, what you think you can afford/want to spend. You answer as you decide. However you decide.
The amount you are "pre-qualified" for depends on what you tell the lender. This will not get you a mortgage, just get you an idea, again, based on what you tell the lender, of what you'll be able to afford.

Pre-Qualification: Fill out lots of forms, give personal and financial details that allow the lender to SEE (vs. hear it from you, you big liar) what you make, what your debts are like, and what your credit report says. This will allow the lender actually decide how much they will lend you and at what rate.
These days they'll give you whatever you ask for (to some extent) but the numbers will of course keep getting bigger depending on what you want to spend. They won't stop you when your monthly payments become 60% of your take-home paycheck. You get to hang yourself!
My suggestion would be to get a "Good Faith Estimate" from a lender. This will break down all the costs in the mortgage, the closing, the inspections etc. Some of this may be a surprise. You should also look for points on your interest rate- which allows it to fluctuate (sort of) even if you're looking at a fixed rate.

Complicated, huh? I can't figure out why there isn't a class on this in college... :P