**Core Concept**
The formation of cartilaginous tissue over fractured bone ends is a process of bone healing, where the body attempts to stabilize the fracture site through the deposition of a cartilaginous callus. This cartilaginous callus is eventually replaced by a bony callus, but in some cases, it may persist, leading to the formation of a cavity containing fluid.

**Why the Correct Answer is Right**
This condition is called a "pseudarthrosis" or "false joint." It occurs when the cartilaginous callus fails to bridge the gap between the fractured bone ends, resulting in a fibrocartilaginous joint that can mimic the appearance of a true joint. The clear fluid within the cavity is likely synovial fluid, which is produced by the synovium, a thin membrane that lines the joint space.

**Why Each Wrong Option is Incorrect**
* **Option A:** This is incorrect because a pseudarthrosis is not a type of bone tumor. While tumors can cause bone destruction and lead to the formation of abnormal bone or cartilage, a pseudarthrosis is a specific type of nonunion that occurs after a fracture.
* **Option B:** This is incorrect because a sequestrum is a piece of dead bone that has become separated from the surrounding bone due to infection or trauma. While a sequestrum can be associated with a nonunion, it is not the same as a pseudarthrosis.
* **Option C:** This is incorrect because a synovial cyst is a type of fluid-filled cyst that can occur in association with a joint or tendon sheath. While a pseudarthrosis can produce synovial fluid, a synovial cyst is a distinct entity that is not equivalent to a pseudarthrosis.

**Clinical Pearl / High-Yield Fact**
A pseudarthrosis is a type of nonunion that can occur in association with a variety of factors, including inadequate immobilization, infection, or vascular insufficiency. It is essential to recognize the signs and symptoms of a pseudarthrosis, such as pain, swelling, and limited mobility, and to initiate appropriate treatment, which may include surgical intervention.

**Correct Answer:** D.