How does literal meaning of a word relate to poetry?
the literal meaning of the words you analyze the poem.
the literal meaning of the words you to determine the narrator.
the literal meaning of words is not related to poetry.
the literal meaning of words proves to be useless to analyze a poem.

First of all, it's really sad that we're teaching poetry with questions like this, because this question really sucks the life and beauty out of reading poetry.

A is your best answer. Obviously knowing the literal meaning of a word is an essential first step to understanding what's happening in a poem. It's hard to analyze a poem if you don't know what the words mean to begin with. Once you know those meanings, you can then move on to thinking about metaphorical or figurative (i.e., non-literal) meanings of the same word.

B is partially right, but it's not the best answer. Certainly knowing the literal meaning of a word CAN help you determine the narrator, but not all poems have narrators, and sometimes the literal meaning won't help you figure out who the narrator is (especially if the narrator is deliberately left unclear).

C and D are wrong, and as a general rule in multiple-choice questions you should be very suspicious of answer-choices that use extreme language (like "useless") or that completely shut down a possibility entirely (which happens in choice C).