Preoccupation is a state where you're absorbed in something. You may have a preoccupation with video games or Hello Kitty, for example, if you can't keep your mind off those things.
We all have our preoccupations: ideas and things that we just can't stop thinking about. Just as an occupation means someone is living somewhere, a preoccupation is an idea that's moved in to our minds. One person's preoccupation might be making more money, while another person's preoccupation could be learning to ride a motorcycle. We can also say that someone who is engrossed or absorbed in something is in a state of preoccupation; they're preoccupied.