Step 1: Understanding the Concept
A colloid is classified by the physical states of its dispersed phase and dispersion medium.
Step 2: Apply to milk
In milk, liquid fat globules are dispersed in water, so both the dispersed phase and the medium are liquids.
Step 3: Name the system
A liquid dispersed in a liquid is called an emulsion, whereas a sol has a solid in a liquid, a gel has a liquid in a solid and an aerosol has a solid or liquid in a gas.
Final Answer:
Milk is an emulsion.
\[ \boxed{\text{(B) }\text{Emulsion}} \]