Based on that language, it is a pre-pay but can be cancelled and refunded up to 1 day before arrival. Not uncommon at resorts to have a pre-pay that is refundable up to a certain amount of time before arrival (usually at least 7 days), but 1 day doesn't make much sense.

I wouldn't be surprised if it's an error and you might have to argue with them to get your prepayment back.