If they're locked out of their house, they should call me and I will let them in. (C).
They're, their, and there are all homophones or words that are pronounced the same. However they all have different meanings.
They're is the contracted form of "they are."Their indicates possession.There indicates location.
Therefore, we can replace they're with they are.
If they're locked out of... is the same as If they are locked out of...
They are in possession of the house, so it is their house.