**Core Concept**
The periapical cyst and granuloma are two types of lesions that develop in response to pulp necrosis. They are characterized by the presence of cystic or granulomatous tissue at the apex of a non-vital tooth. The key to differentiating these two lesions lies in understanding the histopathological and clinical features that distinguish them.

**Why the Correct Answer is Right**
The periapical cyst is a true cyst, lined by epithelium, whereas the periapical granuloma is a collection of granulation tissue without an epithelial lining. The presence of a distinct epithelial lining in the cyst is a critical distinguishing feature. This lining is thought to arise from the epithelial rests of Malassez, which are remnants of Hertwig's epithelial root sheath. The cystic cavity is also typically larger and more well-defined than the granuloma.

**Why Each Wrong Option is Incorrect**
**Option A:** Clinical appearance alone is not sufficient to differentiate between the two lesions, as they can appear similar on radiographs.
**Option B:** The presence of a granulomatous reaction is not unique to the periapical granuloma, as both lesions can exhibit granulomatous inflammation.
**Option C:** The size of the lesion is not a reliable criterion for differentiation, as both cysts and granulomas can vary in size.

**Clinical Pearl / High-Yield Fact**
To remember the key difference between a periapical cyst and granuloma, recall that a cyst has an epithelial lining, whereas a granuloma does not. This can be remembered using the mnemonic "CYST" (Cyst: Contains Your Special Tissue).

**Correct Answer: D.**