Final answer:
The preschool teacher's activity promotes children's literacy development by teaching them that speech can be represented by writing, which is foundational for reading and writing skills.
Step-by-step explanation:
The activity described by the preschool teacher encourages literacy development in children by primarily promoting their awareness that speech can be represented by writing. As the teacher writes down what the children say and then reads it back to them, the students learn that the spoken words they use can be translated into written form, which is a fundamental concept of literacy. This realization helps build the foundation for reading and writing skills, as they start to understand that what they can say can also be read.