The correct option is D Embryo develops in female gametophyte which is retained on parent sporophyte.
Selaginella and Salvinia are considered the first plants to exhibit a significant step toward the evolution of seed habit because embryo develops in female gametophyte which is retained on parent sporophyte. It occurs because Selaginella and Salvinia both are heterosporous, i.e., these plants produce two kinds of spores, macro (large) and micro (small) spores. In the heterosporous species, the female gametophyte remains on the parent sporophytes for variable periods. The development of the zygotes into young embryos takes place within the female gametophytes. This event is a precursor to the seed habit (tendency towards seed formation) considered an important step in evolution. Hence, heterospory leads to seed habits in plants.