But since dream content varies enormously, then even if electrical discharges provide the terms of the physiological explanation of dreams, they cannot completely explain the phenomenon of dreaming.
We are asked what role does the claim that "dream content varies enormously" play in the argument.
Before even looking at the answer choices, we can see that by starting the premise with "[b]ut since..", the psychologist is using this additional fact that dreams vary significantly as evidence against other psychologists' theory that dreams are purely physiological. That is essentially what the correct answer choice (E) is saying.
(D) is wrong because the psychologist is not trying to argue that it is difficult to provide a complete explanation of the phenomenon of dreaming. Rather, he purposefully structures his argument to refute the validity of the other claim and merely conclude that anti-Freudian view cannot completely explain the phenomenon of dreaming, which does not necessarily mean that it is difficult to explain using an alternative theory.
Let me know if this helps and if you have any other questions.