Pre-qualification vs. Pre-approval: What's the Difference?
It is crucial that you get pre-qualified before you actually go out to look at homes. Nothing is more disheartening than looking at homes and then finding out that you cannot qualify for them. And in this market, pre-approval is essential if you wish to compete successfully.
Pre-qualification is the process of finding out what price range you can afford and how much a lender is willing to lend you. Through this process, a buyer will find out which of the many available loan programs best suits their individual needs, which will allow them the highest qualifying power, how much money is needed for a down payment, and how much the closing costs will be.
Using the information you give the loan agent regarding your credit, income, cash-on-hand, and debt, they will pre-qualify you based on the lender's requirements for income-to-debt ratios, housing ratios, and loan-to-values.
You may have a computer program that helps you ascertain your qualifications, but be careful: you must still meet or talk with a loan agent because there are many aspects to the qualifying process that are not covered in these programs!   
A pre-qualification means that based upon the information given to the loan agent you will qualify for a certain loan amount, subject to the verification of that information.
A pre-approval is given by the lender when your loan application and the above information (your "credit package") have actually been received, verified, reviewed (called the underwriting process) and then approved by the lender.
The approval will generally be subject to further documentation on the specific purchase property such as the sales contract, title reports, and appraisal, however, you will know the guaranteed maximum loan amount for which you qualify.
When presenting an offer to a seller, you must be pre-approved to be taken seriously. If you are competing with other buyers, you must be pre-approved to be competitive. It makes sense - Why would a seller choose a buyer that will only likely qualify over one that is more certain to qualify? By having a pre-approval you are also able to make a more attractive offer, should you choose, by keeping the escrow period to a minimum since most of the loan process has already been completed.
Neither of these services should cost you any money, except for the fee to order your credit report.