Step 1: Understanding the nitrogen cycle.
Nitrogen is an essential element for living organisms, but atmospheric nitrogen (N$_2$) cannot be directly used by plants and animals. It must first be converted into usable forms such as ammonia or nitrates through various biological processes collectively known as the nitrogen cycle.
Step 2: Understanding nitrogen fixation.
Nitrogen fixation is the process by which atmospheric nitrogen (N$_2$) is converted into ammonia (NH$_3$) by nitrogen-fixing bacteria such as \textit{Rhizobium}, \textit{Azotobacter}, and cyanobacteria. This process makes nitrogen available to plants.
Step 3: Analysis of the given options.
(A) Nitrification: This is the conversion of ammonia into nitrites and nitrates by nitrifying bacteria.
(B) Denitrification: This is the conversion of nitrates back into atmospheric nitrogen.
(C) Nitrogen fixation: Correct — it converts atmospheric nitrogen into ammonia with the help of bacteria.
(D) Ammonification: This is the conversion of organic nitrogen into ammonia during decomposition.
Step 4: Conclusion.
The conversion of nitrogen into ammonia by bacteria is correctly called Nitrogen fixation.