So, as you know this isn't the correct answer, but the flaw that (C) is describing is that someone is confusing the characteristics of reported statements with the characteristics of the situation that the statements were made.
For example, let's pretend someone was standing at the scene of a chaotic murder in a swamp where there were trained circus alligators. This witness says to the reporter, "I know jellybeans did it with an axe in the library!"
The statements made by the witness are crazy, i.e. in this situation "crazy" is describing the actual words that the witness said, but the situation in which the statements were made, i.e. the chaotic alligator scene of the crime, was also crazy and bizarre. That is all answer choice (C) is describing: statement v. situation in which statements were made.
Hope that helps! Please let us know if you have any other questions.
