The question asks, "The author of the passage uses the term “context†to refer to..."
(A) says, "a holistic assessment of a piece of folklore rather than a critical analysis of its parts"
While it's true that we could view the broader scope of folklore as being holistic, this does not mean that there is not a critical analysis of its parts (there can still be a critical analysis of its parts).
(D) says, "the environment and circumstances in which a particular piece of folklore is used"
The question is asking us what the author means when she uses the word "context" in the passage. "Context" is used in line 50, and this word is the main focus of the final paragraph, where the author discusses "the current interest of folklorists in viewing folklore in context and thus answering questions about what folklore means to the people who use it." In referring to "context," the author is discussing the types of reasons and where folklore is used, which is what (D) says, so it's the correct answer.
Does this make sense? Let us know if you have any more questions!
