When you're preoccupied, you're completely focused on whatever it is that you're doing. It's good to be preoccupied when you're driving, as long as you're preoccupied with the road and not with your cell phone.
Have you ever been so preoccupied with another person that you couldn't hear or see anyone else when you were in the same room as them? Well, it sounds like you were in love! You can be preoccupied with a person, a place, or even a hobby, like collecting baseball cards or seashells. Preoccupied can also mean that you are wrapped up in your own thoughts, which is good if you find yourself to be the most amusing person in the world.