Option A - 'Do' is used with the plural subject. 'The police' is a singular subject and hence we can't use 'do'. Thus option A is incorrect.
Option C - 'Did' is used when the sentence is in the simple past tense. Here, the given question is divided into two clauses; '___ the police know', and 'how the accident happened?' The second clause is in the past tense and the first clause is in the present. As we need the verb for the first clause, we will use the simple present tense and not the past tense 'did'. Thus option C is incorrect.
Option D - 'Is' explains the state of being. In the given sentence, we need a verb to explain the state of doing. Thus option D is incorrect.
Option B - 'Does' explains the state of doing something of a singular subject, in the simple present tense. Thus option B is the correct answer.
'Does the police know how the accident happened?'