The correct answer is option 'B', Jaisalmer.

The Desert Festival is an annual event celebrated in the beautiful city of Jaisalmer, located in the state of Rajasthan, India. This festival is a vibrant and colorful showcase of the local folk arts, culture, and traditions of Rajasthan. It is a three-day extravaganza that attracts tourists from all over the world.

Key points:
- Event: The Desert Festival is an annual event celebrated in Jaisalmer.
- Location: Jaisalmer is a city located in the state of Rajasthan, India.
- Duration: The festival usually lasts for three days.
- Attractions: The festival offers a wide range of attractions and activities, including local folk arts, cultural performances, aerobatics, camel races, turban tying competitions, puppet shows, and more.
- Local Folk Arts: The festival provides a platform for local artists to showcase their talent in various forms of folk arts such as music, dance, and puppetry. Visitors can experience the rich cultural heritage of Rajasthan through these performances.
- Aerobatics: The festival also includes thrilling aerobatic performances by skilled pilots. Spectators can witness breathtaking stunts and formations in the sky, adding an element of excitement to the event.
- Camel Races: One of the main attractions of the Desert Festival is the camel race. This traditional sport showcases the agility and speed of these magnificent animals. Visitors can enjoy watching the colorful spectacle of camels racing against each other on the golden sands of Jaisalmer.
- Turban Tying Competitions: Another interesting activity during the festival is the turban tying competition. Participants compete to create the most elaborate and unique turban styles, reflecting the traditional headgear of Rajasthan.
- Puppet Shows: Puppet shows are an integral part of Rajasthan's cultural heritage. During the festival, visitors can witness captivating puppet performances that depict local legends, folk tales, and historical events.
- Overall Experience: The Desert Festival offers a wonderful opportunity for tourists to immerse themselves in the vibrant culture and traditions of Rajasthan. The festive atmosphere, colorful costumes, lively music, and the majestic backdrop of Jaisalmer's sand dunes make it a truly memorable experience.

In conclusion, the Desert Festival is an annual event held in Jaisalmer, Rajasthan, where visitors can witness the vibrant folk arts, cultural performances, aerobatics, camel races, and various other activities that showcase the rich heritage of the region.