Explanation:

Box1 : 10.0.0.0/16
Address prefix in networking refer to the destination IP address range. In this scenario, destination is Vnet1 , hence Address prefix will be the address space of Vnet1.
Box 2 : Virtual appliance
Next hop gets the next hop type and IP address of a packet from a specific VM and NIC. Knowing the next hop helps you determine if traffic is being directed to the intended destination, or whether the traffic is being sent nowhere Next Hop --> VM1 --> Virtual Appliance (You can specify IP address of VM 1 when configuring next hop as virtual appliance) Box 3 : GatewaySubnet In the scenario it is asked for all the inbound traffic to Vnet1. Inbound traffic is flowing through SubnetGW.
You need to route all inbound traffic from the VPN gateway to VNet1 through VM1.So its traffic from Gateway subnet only.
Reference:
https://docs.microsoft.com/en-us/azure/virtual-network/manage-route-table#create-a-route-table
https://docs.microsoft.com/en-us/azure/network-watcher/network-watcher-next-hop-overview