Replete with bloody revenge, disasters (both deserved and undeserved)

warrior1991 , nothing is seriously wrong with (B).
We have to eliminate (B) because it is not nearly as good as (E).
This question subtly tests meaning (of irony) and rhetorical effectiveness (at conveying that irony). The question is hard.

•• SHORT ANSWER
The short answer is that reflexive pronouns highlight and emphasize subjects because English does not "repeat" subjects very often,
and in this question the word "irony" signals that we need to emphasize the characters. Their situation is odd.
Emphasizing the characters' ignorance comports with the IRONY mentioned; the characters who are actually living a horror story do not know that fact, while the people watching and not living a horror story -- the audience members -- do know.

Reflexive pronouns tell a reader, "Take note! This subject has something unusual going on—a weird situation, maybe, or a peculiar mindset."
Themselves adds emphasis to the play's characters. Emphasis is part of what reflexive pronouns do.

Option E does a better job of contrasting clueless characters and clued-in audience members, a contrast that, in turn, reinforces the word "irony."

•• ANALYSIS

• Irony = contrary to expectation, opposite, contrast
The key clause is the plots of tragedies also involve dramatic irony

Generally, irony suggests that something is opposite from or contrary to what we expect.

We need stark contrast between the audience and the characters in the play.

Take this part on faith for a moment:
-- Using the reflexive pronoun themselves as in (E) spotlights the characters' peculiar ignorance and contrasts it with the watchers' insight.
-- Failing to use the reflexive pronoun themselves as in (B) also fails to illuminate the contrast as effectively as (E) does.

• Reflexive pronouns
Also discussed on this site, here

SIMPLER EXAMPLES

-- The necessary case: I gave myself the epinephrine shot, which cured my severe allergic reaction.
We use a reflexive pronoun (myself) as a recipient of the verb (as a direct object) when the subject of the verb and the object are the same (person or thing). I administer the shot as a subject. I receive the shot as an object.

-- The optional case (#2):
1) Correct but not as quick and hence not as effective as #2: Rohan fixes things because he does not trust others to fix the problems correctly.
2) Correct and more effective than #1: Rohan fixes things himself because he does not trust others to fix the problems correctly.

In #1, we must wait until the end of the sentence to learn that Rohan has a particular reason for fixing things.
It's not all that clear that he refuses to let others help him.
Rohan fixes things . . . (We are not aware that he has a mindset we should pay attention to.)

In #2, Rohan fixes things himself. We know immediately that the himself is important.
Himself signals: pay attention to his mindset or situation. English doesn't "repeat" or reinforce subjects without reason.
Rohan fixes things himself ... now his "why" is more easily absorbed because we are ready for it.

In English, one common way to spotlight the particular situation or state of mind of a subject is to use the reflexive pronoun.

We can emphasize that we had no help: I fixed it by myself.
We can emphasize particular attributes: An inanimate thing itself cannot draw a conclusion; only people draw conclusions.
We can emphasize that a particular person did something: Sir Elton John himself sang for Queen Elizabeth's birthday.
We can emphasize oddity, like the oddity in this question: She herself rarely received praise, though she was both accomplished and quick to praise others.
(It is odd and ironic that she both deserves praise and is generous with praise, but that she rarely receives praise.)

"THEMSELVES" IN THIS CASE

The people IN the story do not understand what the audience understands. Can't the characters see all the horrible things that are happening? Weird.
We use themselves to point a spotlight on and to point to those people IN the play who do not understand.

As a matter of convention, themselves emphasizes THE FACT THAT those people are clueless [mindset].

• Compare B to E in order to eliminate

At this level of question, we may well have two grammatical answers. We have to decide which one is more effective.

I see no basis to eliminate (B) on its own, unless we know
that idiomatically, we use reflexive pronouns for this kind of situation.

I would not eliminate (B) on its own regardless. Rhetoric and style issues require comparison.
One answer is better than the other.

We want to highlight our subjects' peculiar or unusual situation or state of mind.

(B) The horrifying plots of dramatic tragedies ... also involve dramatic irony,
where the audience recognizes the facts before the play's characters recognize the facts.

(E) The horrifying plots of dramatic tragedies ... also involve dramatic irony,
where the audience recognizes the facts before the play's characters themselves do.

Which option refers to and illuminates irony better?

If the answer still seems elusive and abstract,
then we memorize this fact: reflexive pronouns emphasize.
If two sentences are almost identical,
but one emphasizes something and the other does not, we should ask:
do we need the emphasis? Why is there emphasis in one of the sentences?

If we are trying to showcase a subject in an odd position, reflexive pronouns work.
Correct: I myself do not understand this book at the moment, and I wrote half of it!
(State of affairs: weird. The author has forgotten what s/he knew enough to write about.)

Another avenue: Google reflexive pronouns English example sentences and read correct examples for 30 minutes. The concept will sink in.

Finally, HERE is a very good Magoosh blog post with examples.

I hope that analysis helps.