This is called "participating preferred" and it's often more than a 100% guarantee. For example, "3x participating preferred" means that the VC gets 3x their original investment; and they get paid before anyone else ("preferred") in the event of a sale. So, let's say the VC puts in $5M, and the company sells for $16M. The VC gets $15M and everyone else splits $1M.
Why do they put in such an apparently unfair provision? It's because they are investing with the intent to get a 10X or 100X return on investment. A 3X return is viewed as basically a wash, not as a success. If you take VC money, they want you to go big.
For anyone who is curious about how these kinds of deals work, I recommend the book "Venture Deals" (Feld, Mendelson) as a good overview of deal structures, terminology, and pitfalls.