Pre-order limiting is one of the features of the Pre-Order Now app, allowing you to set a limit on preorders while still permitting overselling. You can only enable this feature if you are using the Method 2 setup.
With the Method 2 setup, the pre-order button will be shown once the inventory goes down to 0 and below. In this case, once you set a certain number of available pre-order units and the inventory is above 0, the pre-order button will be displayed even though the inventory requirement isn't met yet (0 and below).
The pre-order button shown will be limited to the number of available pre-order units you set, and once it reaches 0, the button changes to the usual add-to-cart button as long as inventory stays above 0.
This setup usually works for special cases such as a sale where the first few customers get a complimentary item, or even a usual BOGO sale setup but limited.
The value you set for the available pre-order units gets updated each time an order is placed until it goes down to 0.