Okay, let's have a crack at it.
Compression damping controls how quickly the forks compress. The higher the damping, the slower the forks compress when you hit a bump. High compression damping will mean you get lifted up when you hit a bump, medium (correct) compression damping will let the wheel come up without lifting you. If you set it too low, you'll nose-dive every time you hit the brakes and you'll feel like the bike is running in syrup.
Spring preload allows you to set the amount of sag in the forks for your weight. The recommended amount of sag is about 1/4 of the travel of the fork, so in your case, about 25mm. You set that by putting a cable tie around the stanchion (the shiny inner tube) and sitting on the bike. When you get off, there should be about an inch of travel showing between the bottom of the stanchion and the cable tie.
Rebound is rebound damping. Essentially, you want this to be set so that the forks don't extend fast enough to buck you off but not so slowly that they don't have time to fully extend before you hit the next bump. Again, the higher the damping, the slower the extension after compression will be. I set mine so that when I stand over the bike and push down, the wheel stays on the ground as I pull the bar up again.
Basically, you don't want a pogo stick on the front of your bike. The damping allows you to control how quickly the springs extend and contract - increasing the damping slows the motion of the fork. The preload sets the fork for your weight.
Don't be afraid to experiment - everybody likes their bike slightly different from the next person. Play - it's hard to kill the forks with these adjustments! It's your bike, so adjust it to suit the way you ride.
Cheers,
Graeme
Edit: Found
this article after posting. Have a look, it explains things pretty well.