I'm no expert, but I remember when I was in school "Explain with reference to context" was my favorite part of my English literature test. It's been a quite a while since I have answered one of those, so I will give it my best shot.
A reference to context item on a test would be a certain given sentence, paragraph or situation that the student was supposed to explain with room to give their own opinion. The general format to answer the test item was such: "This sentence is taken from the book (so and so), chapter (so and so), page (so and so) and was said by person A to person B. After this introductry sentence came the part where the student had to explain what had transpired that led to the sentence. Once the whole picture was painted and the who, what, why, when, where was answered it was time to end with: "THUS so and so said such and such"