At fold three, they are folding the top half of what they folded down in step 2 up - such that there are three levels on the upper half.
Let's label the columns A, B, C, D (left to right)
Rows = 1, 2, 3, 4 (top to bottom)
Fold 1 = A1 folds directly on top of D1, A4 onto D4
Fold 2 = The A1/D1 corner folds directly onto the A4/D4 corner
Fold 3 = A1/D1 folds up onto A3/D3 (which also includes A2/B2)
Hole Punch = A1, A2, A3 = D1, D2, D3
I believe the answer is B