**Core Concept**
Vasopressin, also known as antidiuretic hormone (ADH), is a hormone secreted by the posterior pituitary gland that plays a crucial role in regulating water balance in the body. It acts on the kidneys to increase water reabsorption and concentration of urine.

**Why the Correct Answer is Right**
Vasopressin acts by binding to V2 receptors in the collecting ducts of the kidneys. This binding triggers a signaling cascade that ultimately leads to the insertion of aquaporin-2 water channels into the apical membrane of the collecting duct cells. As a result, water reabsorption increases, and the concentration of the urine decreases. The V1 receptors, located on vascular smooth muscle cells, are responsible for the vasoconstrictive effects of vasopressin, which increase blood pressure.

**Why Each Wrong Option is Incorrect**
**Option A:** Incorrect because vasopressin does not act by increasing sodium reabsorption in the kidneys. While it does increase water reabsorption, it does not directly affect sodium reabsorption.

**Option B:** Incorrect because vasopressin does not act by decreasing glomerular filtration rate (GFR). In fact, vasopressin can increase blood pressure, which can lead to an increase in GFR.

**Option C:** Incorrect because vasopressin does not act by increasing potassium secretion in the kidneys. Its primary effect is on water reabsorption, not electrolyte balance.

**Clinical Pearl / High-Yield Fact**
It's worth noting that vasopressin is also used as a medication to treat central diabetes insipidus, a condition characterized by the inability to regulate water balance due to a deficiency in vasopressin. The medication is administered intranasally, and it helps to increase water reabsorption in the kidneys and reduce urine production.

**Correct Answer:** D.