This word found its start with the term "Prep School", or preperatory school, which is an elite high school where teenagers live in dormitories on campus. (i.e. Phillips Academy in Andover, Massachusetts - shout out to all my girls at PA!!!) Since these schools are populated by a particular class of people, with a particular style, the adjective PREPPY emerged.
'Preppy' can refer to members of a certain social class, but can also be more generally used as description of personal style.
In terms of style, the stereotype is a mixture of pink-and-green. Pants are typically khakis, Nantucket Reds, and, for men, often khaki-cotton-material in bright neon colors such as pink and lime green. The epitome of preppy pants are the latter, decorated by a pattern of sewn-in whales of a darker contrasting shade. Classic button-down shirts, usually solid or striped, are common, as well as solid and striped polos. The collars of the polo shirts are always "popped", or turned up instead of folded over. Often, polos of different colors are layered, the one on the bottom matching the skirt/pants, the belt, or the headband. Flip-flops are the coup de grace, no matter what the weather. However, when our toes are absolutely freezing off, we wear Uggs, with the tops folded over to expose the fur and our jeans tucked in. We wear v-neck cable-knits and argyles over button-downs. North Face jackets are a must. Pearls are best for jewelry. Excess hair products, jewelry, and make-up is frowned upon. Accessories include Nalgene bottles and tote bags.
In terms of the lifestyle, "preps", or preppy people, typically live in the New England area. They usually belong to Yacht Clubs, Beach Clubs, or Country Clubs, depending on which crowd they run with (i.e. The Eastern Yacht Club in Marblehead, Massachusetts). Their children go to private elementary and middle schools, and are attended by foreign female au pairs, to keep them out of their parents' way until they can be shipped off to boarding school (not that we mind much). They dress in preppy clothes (see above), and spend much of their time shopping to find them. The Jewish kids among them throw fabulous bar mitzvahs during middle school, and if the WASPs and Catholic kids get jealous, we throw even more fabulous Sweet Sixteens, which are similar to bar mitzvahs escept with less religion and more liquor. We all know each other. All of us. I know, it's hard to believe, but somehow we are all intermarried, or at least have some mutual friends. The women are either housewives on committees and boards and things, or they are incredibly successful professionals, like partners in a law firm or the head neurosurgeon at a hospital. The fathers make lots of money, and are always gone on business, and play lots of golf. Acceptable sports are lacrosse, soccer, crew, polo, and sometimes water polo. We are either radically liberal (like my family) or radically conservative, but we don't discuss politics unless everyone in the room is on the same side. We will all get into an Ivy League school. This is a necessity. We summer on the Cape, or the Hamptons, or Nantucket. We spend March break in Atlantis and Cancun and other trendy resorts. Contrary to popular belief, not all preppy people are wealthy - but the more money you have, the easier it is to fulfill the lifestyle and to enjoy its benefits.
The taller girl snorted out a laugh, and her nose ring wobbled a little as her face settled into a derisive sneer. "Look," she said derisively, her voice deliberately too loud, "the preps are slumming it on our side of town." The group looked up at the sound of her voice, scowling back at her triumphant smile. They looked like they had just stepped out of a J. Crew catalog, but were beginning to get the distinct impression that they took a wrong turn and ended up in hell.