Step 1: Recall Seddon's classification of nerve injury, which has three grades - neurapraxia, axonotmesis and neurotmesis.
Step 2: Neurapraxia is the mildest injury. It is a physiological (functional) conduction block usually due to segmental demyelination. The axon remains in continuity and the connective tissue sheaths (endoneurium, perineurium, epineurium) are intact.
Step 3: Because the axon is not divided, there is no Wallerian degeneration. Recovery is complete and relatively rapid (days to weeks) once the demyelinated segment remyelinates. EMG shows no denervation/fibrillation.
Step 4: Why the others are wrong - "Endoneurium/axon cut" describes axonotmesis (axon and myelin disrupted, sheath preserved, Wallerian degeneration occurs). "Sheath cut" or complete transection describes neurotmesis, the most severe injury where the nerve including its sheaths is divided, requiring surgical repair.
Key fact: Neurapraxia = reversible physiological conduction block with an intact axon and no Wallerian degeneration.