The correct answer is C.
An allusion is a reference to a well-known person, place, or thing that exists outside of the literary work. A biblical allusion is simply a reference to a well-known person, place, or thing from the Bible.
Here, the story of Cain and Abel (a biblical story that everyone would recognize) is being referenced. Here, an allusion to Cain is made to explain the origin of Grendel.