What does the term "Ulama" means in Islam?

Scholars of Islamic Studies

The correct answer is Option 1: Scholars of Islamic Studies 

Ulama (plural of alim, or one who knows) are scholars of Islamic studies. As preservers of this tradition they perform various religious, juridical and teaching functions.

Theoretically, Muslim rulers were to be guided by the ulama, who were expected to ensure that they ruled according to the shari‘a. The shari‘a is the law governing the Muslim community. It is based on the Qur’an and the hadis, traditions of the Prophet including a record of his remembered words and deeds.