Rental car companies generally have 3 options when it comes to fuel. Some companies will only offer one, some two, some all three.
Return at same level as when you rented.
Normally this will involve you getting a "full" tank at pickup, and you have to return the car with a full tank, however sometimes (especially at smaller locations) you may actually get a vehicle with less than a full tank of fuel in which case this should be noted on the rental agreement and you will be expected to return it at the same level. Normally this will be done in 8th or 12th of a tank, depending on the marking on the fuel gauge. eg, the vehicle might be marked as 8/8 (full), 4/8 (half tank), etc. Obviously when you re-fuel the car you pay the street price for fuel.
Pay for the fuel that you used
This isn't so much a separate option, it's more of what happens if you take the option above but return the car with less fuel than when you rented it. In this case the rental company will charge you a per-litre rate based on the fuel needed when they refill the car. The catch with this is that their per litre rate is normally around double the street price, so whilst it's convenient not to have to refill the car yourself you can end up paying a large premium for getting them to do it - especially if you returned the car close to empty!
Some companies have a variation on this where they will charge a per distance rate rather than a per litre rate, especially if you've only driven a short distance. In theory, the per distance and per litre rates will work out roughly the same, but using the distance has the advantage that they can work out the price at the time you return the car, rather than having to wait until it is refilled.
Pre-purchase a tank of fuel (aka "return empty")
Again this would normally involve you picking up the car with a full tank of fuel (although again it could be less), and you will pre-pay for the fuel included in the tank, based on the manufacturers capacity of the tank. Normally the price you pay will be discounted over the street price, which is the main incentive for you to pre-pay. eg, if fuel is selling for $1/litre, the pre-pay price might be $0.90/litre.
The catch with this option is that you pay for the fuel whether you use it or not. If you only drive far enough to use half a tank, you still pay for the entire tank. Even if you do drive far enough to use more than one tank, you still need to plan correctly so that you are returning the vehicle as close as possible to empty (without actually being empty!) in order to get the best value for money.
Depending on the location it's also possible that you will be charged additional taxes on top of the stated price. eg, in California they might advertised this option as being $4/gallon (and compare it to $4.40/gallon street price), but there's an additional ~15% in taxes that get added that are not charged elsewhere, so what appears to be a 10% saving actually ends up costing more!
In general this option is NOT a good option, unless the price being charged is significantly lower (including taxes) than the street price, AND if you know you'll be able to return the car almost on empty. Sometimes rental car companies have specific rates that include this in the price, in which case it came sometimes be a good option - but again only if you intend to return the car empty.
Which to pick?
In this case it sounds like you're not being given the choice - but it may be worth asking to see if you can actually change to a different option for a lower price.
In general, the best option is almost always NOT to pre-pay for the fuel, and return the tank full (or at the same level that it was when you rented). The rental staff will likely try and tell you that pre-paying is a better/cheaper option - but that's almost always because they are commissioned on selling it to you, not because it's a better option for you! The only normal exception to this is if you can get a rate where the base rate includes the first tank of fuel. In this case it can work out cheaper (especially if you get a car with a large tank!) - although it's worth comparing as it frequently will be more expensive.
Personally I rent cars around 50 times a year, and over the past few years have pre-paid for fuel exactly once - at a time when the rental location happened to be offering 10% off their pre-paid price at the same time that (due to a refinery fire and a pipe shutdown within days of each other) the street price of fuel had increased around 20% almost overnight. Even with that roughly 30% difference, and with me returning the car with the gauge below empty, I worked out that I probably saved about $5 by the time I included taxes/etc. By the time I rented from the same location two weeks later they had bumped their prices to include the 20% increase, and it was no longer worth pre-paying!