Vogel's Approximation Method tries to measure how costly it would be to miss picking the cheapest route in a row. To do this, for every row we look at the two lowest cost cells, take the very cheapest one and the next cheapest one right after it, and subtract the cheapest from the next cheapest. That gap is the penalty, it tells us how much extra we would pay per unit if we could not use the best cell in that row. This matches option 2, deducting the smallest element in the row from the next highest element of the row, and is different from a plain row reduction where the smallest element is subtracted from every element in the row.