The correct option is
A It is important to observe traffic rules.
Among the given words, we find the word, 'to' and the infinitive form of the verb, 'observe'. (the infinitive is the basic form of the verb without any change. These two words go together i.e 'to observe' is a phrase.
Option A: In this sentence, the subject of the sentence is, 'it'. The word, 'is' is the verb, important' is the. When 'to+ infinitive' is used after an adjective, it describes or provides the reason for the adjective. If we ask the question- 'What is important?', the answer is given by the phrase, 'to observe traffic rules. Hence, 'It is important to observe traffic rules in grammatically correct and meaningful. Option A is the correct answer.
Option B: The phrase, 'to observe traffic rules', when used in the beginning of the sentence means, 'In order to observe traffic rules'. Such a phrase has to be followed by the explanation of what one must to do in order to observe traffic rules. However, the given sentence, 'To observe traffic rules, it is important' is incomplete as it does not explain what is important. Hence, this option is incorrect.
Option C: The phrase, 'Traffic rules to observe' is grammatically incorrect as there is no verb following the noun 'traffic rules'. Hence, this option is incorrect.
Option D: The phrase, 'It is to observe' is grammatically incorrect as 'It is' has to be followed by an adjective. It cannot be followed by 'to+infinitive. Hence, this option is incorrect.