Question

Choose the sentence in which the prepositional phrase BEST modifies the verb driving.

Answer 1

The preposition here is "down" - prepositions describe relations between things, and here down says that something was down the street.

The prepositional phrase is the phrase with down - down the street.

It modifies the verb in the first and third sentences.
1) I saw the cat driving down the street.
 3) I saw the cat driving down the street.

In both of the sentence the verb is in the form of present participle

I would choose sentence 1), as it's not ambiguous that the person is driving, not the cat