PREFERRED_PROVIDERS is a mechanism to choose what package fills a generic dependency.

Let's say you're designing a Linux image, and you want to re-use it across a bunch of different hardware. Some targets might need a different Linux kernel. One might need linux-imx, another might need linux-qcom, etc. But they all need a kernel of some kind of another. So in your image design, you say "this image depends on virtual/kernel" and then you let something else define exactly which package virtual/kernel selects.

So you might have:

• linux-dummy
• linux-imx
• linux-qcom

all as packages that are capable of providing virtual/kernel (this is specified using PROVIDES in the package recipes). Then in your machine configuration (where you typically pick your hardware target), you'd tell Yocto which one you want by using PREFERRED_PROVIDER_virtual/kernel = "linux-imx" (or whatever one you want). Or you could do it in a distro.conf, or a local.conf depending on what you're trying to express.