Correct Answer: (C) It processes directives before the actual compilation begins.
Examiner's Detailed Solution:
Step 1: The C compilation process consists of 4 stages: Preprocessing, Compilation, Assembly, and Linking.
Step 2: The Preprocessor is the very first stage. It handles all directives that begin with the `#` symbol (e.g., `#include`, `#define`, `#ifdef`).
Step 3: It does not understand C syntax. Instead, it performs text substitution—it literally replaces `#include` with the contents of the specified header file, expands macros, and removes comments.
Step 4: Once the preprocessor finishes its text replacement, the expanded source code is passed to the Compiler to be translated into assembly language.