Answer:
The number of permutations is limited by the number of items which are alike.
Explanation:
Honestly, options A and C seem both valid: one states that you're limited by how many items repeat, and the other states that you depend on how many items don't repeat. They seem two faces of the same coin to me.
However, the idea is the following: imagine you want to compute the permutation of 3 object. In general, the answer would be 6: you have
ABC
ACB
BAC
BCA
CAB
CBA
But what if two items would repeat? For example, let's change our set from ABC to AAC. The permutations would be
AAC
ACA
AAC
ACA
CAA
CAA
As you can see, the number of distinct permutation has halved. This is quite intuitive, because every permutation that used to switch A and B now switches A and A itself, so you don't notice any difference.