What is Premium Processing? Does it guarantee H1 approval?

You pay $1000 extra and can get the decision or at least hear from USCIS within 15 days of your receipt notice, which otherwise usually takes about 3-4 months. It is just to expedite the decision and has nothing to do with the approval. It doesn't help you secure the cap in any way either. You need to be selected first in the lottery (which applies to Master's quota also if the cap gets exhausted the first day this year), USCIS issues your receipt notice and then they'll see whether it's a normal petition or a premium processing.

Remember that last year they had suspended premium processing for a while due to high volume of applications and they might do the same this year. So even if you apply with premium processing, it might take few weeks before they’ll issue your receipt notice and only then your 15 days will start.

As even the Master’s quota might be decided with the lottery this year, I think it’s better if you file with normal processing first, see if you get lucky in the lottery and receive your cap number and then can file your premium processing application I-907, should you think an earlier decision helps you in any way. 

I think premium processing is a good idea if you have the Cap gap and you want to move on instead of waiting for 3-5 months for the decision. You can decide whether to change/extend your status or leave US once the OPT expires if you get an early decision.
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Hope that helps.