When products are set up to be 'pre-packaged' inventory, this indicates that the end-products (such as packaged flowers or prerolls) are converted from the bulk material ahead of time to have on hand for sales. When products are set up as 'pre-packaged', there is not a 'Conversion Source Product' set for the end-product.
This simply indicates that you and your team plan on pre-packaging inventory for sales and do not intend to wait to package end-products until orders are submitted.
Creating pre-packaged inventory typically consists of performing production runs from bulk material to the intended end-product. You can learn more about creating a Bill of Materials and performing production runs here.
Pre-packaged inventory can be allocated to orders directly from the Fulfillment > Orders > Order Details page.