Question: What does being a "prep" exactly mean? 

Answer: Isis is partly right. The word is "preppie." It means being in a clique of students in a public school (or in a private one), who are going on to college, as opposed to those who may not be. It comes from "preparatory school," which is usually a private one. Other cliques in a public school might be jocks (athletes) or goths (weird, dark-dressers). Preppie carries the meaning that the person is richer and/or more socially important than others. Some years ago, a young man caused the death ofa young woman in Central Park, New York City. It was called the Preppie Murder Case, because he was in a private preparatory school, and he claimed that she died because of "rough sex." So the word "preppie" carries a lot of emotional weight.
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