Fusion usually means something is joining to make something else. Nuclear fusion happened, for example, in the Big Bang, where subatomic particles came together to make Hydrogen and Helium. In short, the last option is your answer. :)
Based on this, you can tell that Iron(Fe) does not react with Nitrogen(N), but does with something in normal air. The element the Iron is reacting with Oxygen(O), and the compound that is formed is called iron oxide.
