The line that best develops Walter Mitty's character is: d. " Then, with that faint, fleeting smile playing about his lips, he faced the firing squad; erect and motionless, proud and disdainful, Walter Mitty the Undefeated, the inscrutable to the last."
Walter Mitty is almost a pathological daydreamer. Since reality bothers him and is far from what he wished it to be, the solution he finds is to imagine situations in which he's completely different than what he is in real life.
Walter is an ordinary man with even more ordinary skills. He's not a great driver, he can't even put chains around his tires without tangling himself in them. He's a coward when it comes to dealing with his wife, being constantly bossed around by her.
However, in his imagination, Walter is always some sort of hero, brave and strong, more intelligent than the average. The line - " Then, with that faint, fleeting smile playing about his lips, he faced the firing squad; erect and motionless, proud and disdainful, Walter Mitty the Undefeated, the inscrutable to the last." - shows how he feels inside. He may not be much of a role model on the outside, but that's how he really feels: undefeated, inscrutable. It doesn't matter how much his own wife and other people may judge him and control him, they will never be able to control his thoughts, they will never know what he really feels towards them and how he disdains this real world of theirs.