Why do wet clothes dry faster when spread out?

The correct option is Surface area is increased.

Drying wet clothes is primarily driven by the process of evaporation, which is a surface phenomenon. Unlike boiling, which takes place throughout the entire volume of a liquid, evaporation occurs only at the boundary layer where the liquid meets the surrounding air.
When water molecules at the surface gain enough kinetic energy, they overcome the intermolecular forces of attraction holding them in the liquid state and escape into the atmosphere as water vapor.

By spreading out the clothes, the total surface area of water exposed to the environment is significantly increased. The rate of evaporation ($R$) is directly proportional to the exposed surface area ($A$):
$R\propto A$
A larger surface area allows a greater number of water molecules to escape into the air simultaneously, resulting in a much faster drying process compared to when clothes are crumpled or folded.