The BOM line type determines how the line is handled during master planning and batch order production1. The Item line type indicates that the item is a material or service that is directly consumed, and that doesn't require further explosion or pegged supply1. When you estimate a production order for an item that has a BOM line with the Item line type, a subproduction order is created for the item2.
The other options are not correct, because they do not generate subproduction orders. The Vendor line type indicates that the item is purchased from a vendor and not produced internally1. The Phantom line type indicates that the item is an intermediate product that is used to simplify the design process and group complex products into engineering modules1. The Pegged supply line type indicates that the item is supplied by another production order or transfer order, and that the supply must be reserved before it can be consumed1.