Ceux que je préfère sont en coton.

Ceux is a demonstrative pronoun. It means those or the ones, and it replaces a plural masculine noun that is understood from context.

So in Ceux que je préfère sont en coton, ceux means something like the ones.

It is:

• masculine plural
• used instead of repeating a noun

For example, if you were talking about shirts, ceux could mean the ones/shirts.

Because ceux means those ones / the ones, while ils just means they.

Use ceux when you are pointing to or selecting a group of things, usually in contrast with other things:

• Ceux que je préfère... = the ones that I prefer...

Use ils when you are simply talking about a group that has already been identified:

• Ils sont en coton = They are made of cotton

So ceux is more specific here: it refers to the ones I prefer.

Here, que is a relative pronoun meaning that, which, or sometimes nothing at all in English.

It links ceux to the clause je préfère:

• ceux que je préfère = the ones that I prefer / the ones I prefer

French needs que here, even though English often drops that.

Use que because it is the direct object of préfère.

In the clause:

• je préfère ceux the thing being preferred is ceux, so it is the object.

When that object becomes part of a relative clause, French uses que:

• ceux que je préfère

Very simply:

• qui = the relative pronoun for the subject
• que = the relative pronoun for the direct object

Compare:

• Ceux qui sont en coton... = The ones that are made of cotton...
  (qui is the subject of sont)
• Ceux que je préfère... = The ones that I prefer...
  (que is the object of préfère)

Because the verb agrees with its subject, not with its object.

In je préfère, the subject is je, which is singular:

• je préfère = I prefer

Even though ceux is plural, it is the object of préfère, so the verb does not become plural.

Because sont agrees with the subject ceux, which is plural.

• ceux = plural
• so the verb must also be plural:
  • ceux sont would not normally be used by itself, but in this full sentence:
  • Ceux que je préfère sont en coton

So:

• singular: Celui que je préfère est en coton
• plural: Ceux que je préfère sont en coton

En coton means made of cotton or cotton.

French often uses en to talk about the material something is made from, especially with clothing and fabrics:

• en coton = made of cotton
• en laine = made of wool
• en soie = made of silk

So sont en coton means are made of cotton.

Usually, for material in this kind of sentence, en coton is the natural choice.

• en coton = made of cotton / cotton
• de coton is generally not the normal way to say that here

For clothes, fabrics, and many manufactured objects, French commonly uses en:

• une chemise en coton
• un pull en laine

So in this sentence, sont en coton is the standard expression.

Because French normally requires the relative pronoun in this structure.

English can say:

• the ones I prefer

French must say:

• ceux que je préfère

So even when English leaves out that, French keeps que.

In standard French, ceux usually needs something to specify it.

It is commonly followed by:

• a relative clause: ceux que je préfère
• -ci / -là: ceux-ci, ceux-là
• a phrase with de: ceux de Marie

So ceux by itself often feels incomplete.

That is why Ceux que je préfère... sounds natural: the relative clause tells us which ones.

The demonstrative pronoun changes for gender and number:

• celui = masculine singular
• celle = feminine singular
• ceux = masculine plural
• celles = feminine plural

Examples:

• Celui que je préfère est en coton. = The one I prefer is made of cotton.
• Celle que je préfère est en coton. = The one I prefer is made of cotton.
  (referring to a feminine noun)
• Celles que je préfère sont en coton. = The ones I prefer are made of cotton.
  (for feminine plural nouns)

The sentence breaks down like this:

• Ceux = the ones / those
• que je préfère = that I prefer
• sont en coton = are made of cotton

So the pattern is:

demonstrative pronoun + relative clause + main verb

More literally:

• Those that I prefer are in cotton

But natural English is:

• The ones I prefer are made of cotton
• or The ones I prefer are cotton

Yes. Préfère is the 1st person singular present form of préférer:

• je préfère = I prefer

The accent change is normal in this verb:

• préférer
• je préfère
• tu préfères
• il/elle préfère
• nous préférons
• vous préférez
• ils/elles préfèrent

So in this sentence, je préfère simply means I prefer.

Yes, that is grammatically possible in English, but it sounds less natural in everyday speech.

More natural translations are:

• The ones I prefer are made of cotton.
• The ones I prefer are cotton.

So those is possible, but the ones usually matches the French better here.