They are both functions which take an input tensor and produce an output tensor. The data augmentation step comes first and then the output of that is the input to the preprocessing step. Note that the data augmentation function is passed as a function reference, so you just use the name of the parameter, not the name of the actual function being passed in as the argument.
The template code has lots of comments and other guidance. Please take another look with what I said above in mind and see if things make more sense now …