Here is a link to the FAQs, which has a pretty good breakdown of the process:
http://dcps.dc.gov/DCPS/Files/downloads/Learn-About-Schools/Preschool%20and%20Pre-K/2013%20PSPK%20Lottery%20FAQ_.pdf.
To reiterate, ranking a school #1 does not mean you are only competing against others who ranked in #1, and conversely, ranking a school #6 does not destroy your chances of getting in. Here is a quick example. The process is automated, but this is a step by step breakdown of what happens:
Let's say your picks were as follows:
Janney
Murch
Mann
Lafayette
Key
Barnard (IB)
I intentionally chose the first five as schools that will only admit IB students in the initial lottery. Random numbers are generated for your child at each school as follows:
Janney - 5
Murch - 200
Mann - 3
Lafayette - 19
Key - 7
Barnard (IB) - 84
Hooray! Things are looking pretty good…until you consider that anyone with a preference will be placed first. Even though you had great numbers at Janney, Mann, Lafayette and Key, you will inevitably be pushed out by those with preference, who get placed first. Your good numbers will help get you good spots on the waitlist, but won’t get you in, and wouldn’t have no matter how you had ranked the schools. Even though your child was #84 at Barnard, only three children ahead of him (#1-83) had IB preference. Therefore, he ends up being #4 on the Barnard accepted list. He gets waitlisted at the first five schools based on his original lottery numbers. The process is automated, and you don't see all the steps above - you just get notification that he is waitlisted at the first five and admitted at Barnard.
Alternatively, if you had ranked Barnard as #1, he would have been #4 on the Barnard accepted list and that would have been it.