This phenomenon is explained by the principle of conservation of energy.
At the top of the waterfall, water possesses gravitational potential energy ($PE = mgh$).
As the water falls, its potential energy is converted into kinetic energy ($KE = \frac{1}{2}mv^2$).
When the water hits the rocks and the pool at the bottom, its macroscopic motion (and thus its kinetic energy) is brought to a stop.
This kinetic energy does not disappear; it is converted into other forms, primarily into thermal energy (heat) due to the impact, friction, and turbulence.
This conversion of kinetic energy into heat slightly increases the temperature of the water at the bottom of the waterfall.
Option (C) correctly describes this energy transformation. Options (A), (B), and (D) are incorrect physical explanations.