Liquidation preference means they are preferred when there is a liquidation. So if the company is sold the person with the liquidation preference gets their money out first at the liquidation preference ratio. In this case, $2Mx2 means if the company is sold for $10M even though they only own 10% they get the first $4M.
It means that if the company liquidates -- IPO, sale, or dissolution being the more common forms -- the investor is first in line for $4,000,000. Then, any remaining money gets split among the other share holders. If there's less than $4m in the pool, then the investor gets it all and everyone else gets nothing.
