The STUFF function in SQL Server replaces a portion of a string with another string. The syntax is STUFF(original_string, start_position, length, replacement_string). Starting at position 3 (the character 'c'), it replaces 2 characters ('cd') with 'YZ', resulting in 'abYZef'. Option A is incorrect because it keeps 'c' before YZ. Option C incorrectly starts replacement from position 2. Option D incorrectly preserves all original characters.