I would guess D, "Earth's temperature variations are moderate because of the significant amount of water on its surface"
Specific heat measures how much energy is required to raise the temperature by one degree Kelvin.
If the Earth has a lot of water, then it might explain why temperature changes are so gradual: It takes a lot of energy to cause temperature change.
This is a very poorly written question, because of the underlying reason why water has such a high specific heat. Water has high specific heat because of hydrogen bonds, which means that energy is used to break the bonds, and is not all being spent on raising water's average kinetic energy, (which is its temperature).
(Apart from hydrogen bonding, water has more degrees of freedom, see: http://chemistry.stackexchange.com/questions/26651/why-is-the-specific-heat-of-water-high for details)
The hydrogen bonding in water contributes to a lot of the answers, such as water being a "universal solvent." It just depends on how far you are taking the question. I wouldn't be surprised if one of the other answers was correct as well.