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Genera like Selaginella and Salvinia which produce two kinds of spores, macro (large) and small (micro) spores are known as heterosporous. Microspore and macrospore germinate and gives rise to male and female gametophyte respectively. The female gametophytes in these plants are retained on the parent sporophyte for a variable period. The development of the zygote into young embryo takes place within the female gametophytes. This event is a precursor to the seed habits considered an important step in evolution. So, the correct answer is 'Embryo develops in female gametophyte which is retained on parent sporophyte'.