Step 1: Concept
Creating knockout mice requires isolating the rare Embryonic Stem (ES) cells where the gene was successfully disrupted.
Step 2: Meaning
The $neo^r$ gene (neomycin phosphotransferase) confers resistance to the antibiotic G418.
Step 3: Analysis
By inserting the $neo$ gene into the target gene sequence, the target gene is broken (knocked out), and the cell gains antibiotic resistance. This allows researchers to kill all cells that didn't take up the construct by adding G418 to the culture.
Step 4: Conclusion
The $neo$ gene acts as a marker to select only the successfully modified cells.
Final Answer: (C)