Step 1: Height is defined here as the number of edges from the root to the deepest node. So the tree has levels numbered \( 0, 1, 2, \ldots, h \), giving \( h + 1 \) levels in total.
Step 2: A binary tree is packed most densely when every level is full. Level \( i \) can hold at most \( 2^{i} \) nodes.
Step 3: Sum the maximum nodes across all levels:
\[ 2^{0} + 2^{1} + 2^{2} + \cdots + 2^{h} \]
This is a geometric series with ratio 2.
Step 4: The sum of the series is
\[ \sum_{i=0}^{h} 2^{i} = 2^{h+1} - 1 \]
Step 5: Quick check with \( h = 2 \). Levels hold 1, 2, 4 nodes, total 7, and \( 2^{2+1} - 1 = 8 - 1 = 7 \). It matches.
Answer: option C.