I came across a very detailed & comprehensive 30 page document on the Windows Group Policy, covering Server 2008, Vista & in all probability apply to Windows 7 as well. Group Policy Preferences enables you to configure, deploy, and manage operating system and application settings that were previously not possible to manage using Group Policy.
In Policies, Logon scripts had to be written & any subsequent changes would require re-writing the whole script. Preferences overcomes this hassle & makes it easier to enforce policies. An excerpt from the doc:
The key difference between preferences and policy settings is enforcement. Group Policy strictly enforces policy settings. First, Group Policy writes those settings to the Policy branches of the registry, and the access control lists (ACLs) on those branches prevent Standard users from changing them. When a Group Policy-aware application or operating system feature looks for a potentially managed setting, it first looks for the policy setting. If the policy setting doesn’t exist, it looks for the setting elsewhere in the registry. Second, Group Policy-aware applications and operating system features typically disable the user interface for settings that Group Policy is managing, which prevents users from changing them. Finally, Group Policy refreshes policy settings at a regular interval, which is every 90 minutes, by default, but which is configurable by a Group Policy administrator.
Read the document below:
You can find more info on GPP: