Step 1: Concept
The respiratory system consists of a series of tubes that end in specialized structures for gas exchange.
Step 2: Meaning
Gas exchange requires a massive surface area and very thin membranes for oxygen and carbon dioxide to pass through.
Step 3: Analysis
The Trachea and Larynx are part of the upper airway, and Bronchioles are small tubes. The Alveoli are the microscopic, grape-like air sacs where the actual exchange of gases with the blood occurs.
Step 4: Conclusion
Alveoli are the functional units of the lungs where gas exchange takes place.
Final Answer: (D)