Explanation:

Line of Business WebAPP works on VMs need internal load balancer. So D is needed. Then deploy WebAPP on VMs, check the link. https://docs.microsoft.com/en-us/azure/application-gateway/quick-create-portal So B is needed as well. The orignal answer is not accomplished.

A custom policy definition is a way to define your own rules for using Azure resources. You can use custom policies to enforce compliance, security, cost management, or organization-specific requirements. However, a custom policy definition alone is not enough to meet the goal of automatically blocking TCP port 8080 between the virtual networks. You also need to create a policy assignment that applies the custom policy definition to the scope of the subscription. A policy assignment is the link between a policy definition and an Azure resource. Without a policy assignment, the custom policy definition will not take effect. Therefore, the solution does not meet the goal.
References:
Tutorial: Create a custom policy definition
Create and manage policies to enforce compliance

Explanation:

Box 1. VNET2 and VNET3
Box 2: VNET1
Gateway transit is disabled.
Reference:
https://docs.microsoft.com/en-us/azure/virtual-network/virtual-network-peering-overview

Explanation: