Selaginella and Salvinia are considered to represent a significant step toward evolution of seed habit because
Female gametophyte is free and gets dispersed like seeds.
Female gametophyte lacks archegonia.
Megaspores possess endosperm and embryo surrounded by seed coat.
Embryo develops in female gametophyte which is retained on parent sporophyte.

The correct option is D Embryo develops in female gametophyte which is retained on parent sporophyte.Genera like Selaginella and Salvinia which produce two kind of spores, macro (large) and small (micro) spores are known as heterosporous. Microspore and macrospore germinate and gives rise to male and female gametophyte respectively. The female gametophytes in these plants are retained on the parent sporophyte for variable period. The development of zygote into young embryo takes place within the female gametophytes. This event is a precursor to the seed habits considered as an important step in evolutionSo, the correct answer is 'Embryo develops in female gametophyte which is retained on parent sporophyte'