Ugh. I think you're the victim of poorly worded test questions.
The correct word for #1 is B. I would have put a comma after but. It's underlaid because it's a simple past-tense verb.
In #2, I don't understand the use of by. By can mean beside or next to, which doesn't make much sense. Or it can mean that the chalk and limestone did the laying, which makes even less sense. So in #2, as in #1, I would have said with, not by (like #1) and, again, used underlaid.
Sorry I can't be more help. But I will say this: Underlay is a very uncommon word, and no native English speaker will mind if you never use it (in any of its verb forms).
Student or Learner