Here, $x,y$ are $n$ length binary strings.
If $n=2$, we have $x,y \in \{00, 01, 10, 11\}$
For a generic function mapping to $\{0,1\}^2$ we have $2^{2}=4$ options for each of the four $2$ bit strings thus giving $2^4 =16$ functions (in general $2^{2^2}).$ But here, our function must be linear.
Lemma: Once we assign values to $h(x)$ for all $x$ having exactly one $1,$ the other values are fixed.
For example, for $n=2$ we can only fix $h(01)$ and $h(10)$ and the remaining two values $h(00)$ and $h(11)$ are fixed as $h(00)$ must be $h(01) \oplus h(01) = 00$ and $h(11) = h(01) \oplus h (10).$
In this way for any $n$ we have only $n$ combinations possible from the domain set for a linear function instead of $2^n$ for a normal function. Here, each of these $n$ possible combinations can be mapped to any of the $2^n$ bit strings thus giving rise to $\left({2^n}\right)^n$ possible LINEAR functions which equals $2^{n^2}.$
Correct Option: B.