Someone who's preliterate hasn't learned how to read or write yet. Your two year-old cousin is probably preliterate.
Small children are preliterate, and some people with learning difficulties remain preliterate for much longer. There are even entire preliterate societies, in which no one knows how to read or write. In these cultures, people speak and communicate perfectly well — they just don't have a written version of their language. When you're literate, you can read and write, and both words have a Latin root, literatus, "educated," or literally, "one who knows the letters."