A- By changing the category of Azure policy, we will not get anything as it is just metadata is being used for management and govern purpose by Administrators. It does not matter in defender side if add policy’s category to something – there will not be any change category for the policy.
B- by adding policy to the custom initiative we cannot say we already assigned it to the Subscription we can add it to initiative, but we cannot say, whether this initiative already assigned to Subscription or not.
C- If we see question carefully it shows the settings of policy and definition location just shows where policy has been applied, this does not tell us policy already assigned it just shows the location of policy in case we will apply it, it will be applied to Tenant Root Group which contains all objects.
I think D is the option here since we assign policy1 we can see results in the defender for cloud as we know defender for cloud works based on assigned policies, in the option A, B,C we cannot tell the policy has been assigned or not. That is why I would go with D.