Step 1: Understanding magnetic dipoles.
A magnetic dipole consists of two equal and opposite magnetic charges separated by a small distance. The dipole moment is directed from the negative to the positive pole.
Step 2: Analyzing the field behavior.
When placed in an external magnetic field, the dipole tends to align with the field. The field lines form a dipole pattern around the magnetic charges.
Step 3: Conclusion.
Thus, the magnetic dipole forms a dipole in the external magnetic field. The correct answer is (C).