What Puck means by saying "But they do square" is that (b.) they argue with each other.
In A Midsummer Night's Dream by William Shakespeare, Puck is a fairy. Moreover, some of the most important events in the play are caused by his magic. In this excerpt, he is referring to the relationship between Oberon and Titania, the King and Queen of the Fairies. From the moment in which Titania starts spending most of her time with a chalenging boy, Oberon becomes jealous and starts to seek revenge. They also begin to argue with each other, which is what Puck is referring to when he says "But they do square". As a result, their arguments make the little fairies feel frightened.