Methane reacts with chlorine in the presence of sunlight to form chloromethane and hydrogen chloride. Which of the following statements is CORRECT?
Statement I: Only one chlorine atom can substitute at a time.
Statement II: The reaction is an example of a substitution reaction.
Statement III: Multiple substitution can occur if the reaction continues.

The correct option is I, II and III are true.

Let us analyze each statement regarding the chlorination of methane step-by-step:

Statement I: Only one chlorine atom can substitute at a time.
In the photochemical reaction between methane (${\text{CH}}_4$) and chlorine (${\text{Cl}}_2$), the reaction proceeds via a free-radical mechanism. In each elementary step, a single chlorine free radical ($\text{Cl}•$) abstracts a hydrogen atom from methane, forming a methyl radical, which then reacts with another chlorine molecule to replace one hydrogen atom with one chlorine atom. Thus, substitution occurs step-by-step, replacing one chlorine atom at a time. Therefore, Statement I is correct.

Statement II: The reaction is an example of a substitution reaction.
A substitution reaction is a reaction in which an atom or a group of atoms in a molecule is replaced by another atom or group of atoms. Here, the hydrogen atoms in the methane molecule are sequentially replaced by chlorine atoms. Hence, this reaction is a classic example of a free-radical substitution reaction. Therefore, Statement II is correct.

Statement III: Multiple substitution can occur if the reaction continues.
If chlorine is present in excess or if the reaction is allowed to continue in the presence of sunlight, chloromethane (${\text{CH}}_3\text{Cl}$) undergoes further substitution to form dichloromethane (${\text{CH}}_2{\text{Cl}}_2$), trichloromethane/chloroform (${\text{CHCl}}_3$), and finally tetrachloromethane/carbon tetrachloride (${\text{CCl}}_4$). Thus, multiple substitutions occur as the reaction progresses. Therefore, Statement III is correct.

Since all three statements (I, II, and III) are correct, the correct choice is "I, II and III are true".