Step 1: $S_1: C_1(0,0), r_1=3$. $S_2: C_2(2,0), r_2=1$.
Let variable circle $S$ have center $C(x,y)$ and radius $r$.
Step 2: Touches $S_1$ internally: $CC_1 = r_1 - r = 3 - r$.
Touches $S_2$ externally: $CC_2 = r_2 + r = 1 + r$.
Step 3: Adding the two: $CC_1 + CC_2 = (3-r) + (1+r) = 4$.
This is the definition of an ellipse with foci $C_1(0,0)$ and $C_2(2,0)$ and major axis $2a = 4 \implies a=2$.
Step 4: Center of ellipse is $(1,0)$. $ae = 1 \implies 2e = 1 \implies e=1/2$.
$b^2 = a^2(1-e^2) = 4(1-1/4) = 3$.
Equation: $\frac{(x-1)^2}{4} + \frac{y^2}{3} = 1$.
Check (0, $\pm \sqrt{3}$): $\frac{(-1)^2}{4} + \frac{3}{3} = 1/4 + 1 \neq 1$. (Re-calculating: $CC_1 + CC_2 = 4$).
At $x=0$, $1/4 + y^2/3 = 1 \implies y^2/3 = 3/4 \implies y^2 = 9/4 \implies y = \pm 3/2$.
Check options: (B) usually refers to points on the locus. If we check $x=0$, $y = \pm 3/2$. If we check $x=1, y = \pm \sqrt{3}$. Let's re-verify the coordinate calculation.