Is this answer about the limiting factor correct?
I agree with you, and think that there is a mistake in the "Correct answer". The interpretation in the "Explanation" seems to be correct though ("Algae at locations 4 and 5 exhibited growth in response to fertilization with nitrogen."), so I think that there is a typo/mistake in the "correct answer". The answer should be D.

Normally within ecology (and especially in reference to nutrients, such as  nitrogen and phosphorus), limiting factor refers to the substance/nutrient that is in short supply within a particular environment, and is therefore limiting the potential growth of organisms. For examples, see any ecological textbook or Blumenthal et al (2001) (as an article example, picked at random). The concept of limiting factors is related to Liebig's_law, which states that growth of organisms is determined by the scarcest resource, and not the total level of resources.

When performing a couple of searches now, I see some instances though where the term limiting factor is used on the opposite way, in reference to toxic substances. One example of this is Imadi et al (2016), where monomeric aluminum reduces root growth due to aluminum toxicity. This is not the most common use of the term though.