C. It is a land run by horses. The Houyhnhnms are the horses.
The following describe whey A, B and D are not the answers. A. The horses refer to humans as "Yahoos" and believe humans to be inferior. B. Upon arriving Gulliver first thinks that there is some kind of magic that has allowed people to change into horses. D. Gulliver learns the Houyhnhnm language and begins to communicate with them.