**Core Concept**
Free water clearance is a measure of the volume of plasma that is cleared of solute-free water per unit time, reflecting the ability of the kidneys to dilute or concentrate the urine. It is an important parameter in assessing the renal concentrating ability and is influenced by the presence of solutes in the tubular fluid.

**Why the Correct Answer is Right**
A decrease in free water clearance indicates a reduced ability of the kidneys to dilute the urine, which can result from a variety of factors such as hypernatremia, hypovolemia, or certain types of kidney disease. This can lead to an inability to excrete a dilute urine, resulting in an increase in serum osmolality.

**Why Each Wrong Option is Incorrect**
* **Option A:** This option is incorrect as free water clearance is not directly affected by changes in serum albumin levels.
* **Option B:** This option is incorrect as free water clearance is not directly affected by changes in blood pressure.
* **Option C:** This option is incorrect as free water clearance is actually increased by conditions that cause an increase in plasma osmolality, such as diabetes insipidus.

**Clinical Pearl / High-Yield Fact**
A key clinical correlation is that a decrease in free water clearance can be seen in patients with hypovolemic states, such as dehydration or hemorrhage, where the kidneys have a reduced ability to dilute the urine.

**Correct Answer: C. Diabetes Insipidus**