I would say that the illiteracy affected literature of the Anglo-Saxon period in a way that b) People shared stories using the spoken word. Given that they were illiterate, and didn't know how to write, they could only spread those stories orally.
The best answer to the question 'In what way did the illiteracy of the Anglo-Saxon period affect literature?' would be letter b. People shared stories using the spoken word since they do not have an established writing system that is known by many.
