What did the document 'Instrument of Accession' mean?

The correct answer is option (1) - The princely state's agreed to be a part of the Union of India

The Instrument of Accession: It was a unilateral agreement signed by the rulers of princely states to join India after the end of British rule in 1947. By signing the Instrument of Accession, the princely state surrendered control over matters related to defence, foreign affairs, communication etc. to the Dominion of India or Pakistan, depending on their choice and agreed to become a part of that country.

Prior to 15 August 1947, the peaceful negotiations between the Indian government and the rulers of most states resulted in the inclusion of their territories, contiguous to the new boundaries of India, into the Indian Union. The rulers willingly signed the "Instrument of Accession," indicating their state's agreement to become a part of the Union of India