**Core Concept**
Acute respiratory distress syndrome (ARDS) is characterized by non-cardiogenic pulmonary edema, leading to hypoxemia and respiratory failure. Positive end-expiratory pressure (PEEP) is a lung-protective strategy used to improve oxygenation in ARDS patients by recruiting alveoli and increasing functional residual capacity (FRC).

**Why the Correct Answer is Right**
The mechanism by which PEEP improves oxygenation in ARDS patients is through the recruitment of alveoli, which allows for more efficient gas exchange. When PEEP is applied, it increases the pressure in the lungs at the end of exhalation, preventing alveolar collapse and allowing alveoli to remain open. This results in an increase in functional residual capacity (FRC), allowing for more oxygen to be stored in the lungs and improving oxygenation.

**Why Each Wrong Option is Incorrect**
**Option A:** This option is incorrect because increasing PEEP does not directly affect the diffusion of oxygen across the alveolar-capillary membrane. While diffusion can be affected by alveolar-capillary membrane damage in ARDS, PEEP's primary mechanism is through alveolar recruitment.

**Option B:** This option is incorrect because increasing PEEP does not directly affect the ventilation-perfusion (V/Q) ratio. While PEEP can improve V/Q matching by recruiting alveoli, this is not its primary mechanism of action.

**Option C:** This option is incorrect because increasing PEEP does not directly affect the amount of surfactant produced in the lungs. While surfactant can affect alveolar stability, PEEP's primary mechanism is through alveolar recruitment.

**Option D:** This option is incorrect because increasing PEEP does not directly affect the amount of pulmonary blood flow. While PEEP can affect pulmonary blood flow, its primary mechanism is through alveolar recruitment.

**Clinical Pearl / High-Yield Fact**
A key point to remember is that PEEP should be titrated to the lowest level necessary to achieve adequate oxygenation, as high levels of PEEP can lead to barotrauma and volutrauma.

**Correct Answer: C. PEEP increases functional residual capacity (FRC) by recruiting alveoli and preventing alveolar collapse, allowing for more efficient gas exchange and improved oxygenation.**