According to the ServiceNow Hardware Asset Management documentation, a configuration item (CI) is an entity or thing that you wish to track that is required for the delivery of a service. A CI can be a hardware asset, a software asset, a service, a document, or any other component that is part of the IT infrastructure1. A CI is different from an IT asset in that a CI focuses on the technical attributes and relationships of the component, while an IT asset focuses on the financial and contractual aspects of the component2. Therefore, a component is considered a CI as opposed to an IT asset when you want to track its relationship information, such as its dependencies, impacts, and interactions with other CIs. Relationship information helps to manage the configuration and performance of the IT services and to identify and resolve incidents and problems3.
The other options are not correct because:
* Track its incurred costs: This is a function of an IT asset, not a CI. An IT asset tracks the cost, depreciation, and value of the component, as well as the budget and expenses related to the component2.
* Manage its retirement: This is also a function of an IT asset, not a CI. An IT asset tracks the status, location, ownership, and history of the component, as well as the events and actions that occur during the asset lifecycle, including its retirement or replacement2.
* Manage its license contracts: This is another function of an IT asset, not a CI. An IT asset tracks the terms and conditions, warranties, service level agreements (SLAs), and renewals of the contracts associated with the component. Contract management helps to manage the vendor relationships and compliance obligations of the component2.
* Know who is using it: This is not a specific function of either an IT asset or a CI, but rather a common attribute that can be shared by both. Both an IT asset and a CI can have a user or owner field that indicates who is using or responsible for the component4.
References:
* ServiceNow Hardware Asset Management: Asset and CI management
* ServiceNow Hardware Asset Management: Configuration Management
* ServiceNow Hardware Asset Management: Configuration item (CI)
* ServiceNow Hardware Asset Management: Asset and CI fields

Baseline asset states are the predefined states that represent the lifecycle stages of hardware assets in the ServiceNow platform1.
Baseline asset states are used to track the status, location, and ownership of hardware assets, as well as to trigger workflows and tasks for asset management2.
The baseline asset states are: In Stock, In Use, In Repair, In Transit, Retired, Consumed, and Duplicate1.
In Stock means the asset is available in a stockroom and ready for deployment1.
Consumed means the asset is used up or depleted, such as a toner cartridge or a battery1.
Retired means the asset is no longer in use and has been disposed of or recycled1. Reference:
Baseline asset states
Hardware Asset Management overview

Explanation
According to the ServiceNow Hardware Asset Management documentation, the Now Platform can create an asset automatically under the following conditions1:
Configuration normalization: When a configuration item (CI) is normalized, the platform creates a corresponding asset if it does not exist.
Enforced CI verification: When an asset is verified, the platform creates a corresponding CI if it does not exist.
Data synching: When an asset or a CI is updated, the platform synchronizes the data between the two records.
Model characterization: When a model is characterized, the platform creates an asset for each CI that belongs to that model.
Data justification is not a condition that triggers automatic asset creation. Data justification is a process of validating and correcting the data quality of assets and CIs2. References:
ServiceNow Hardware Asset Management: Asset and CI management
ServiceNow Hardware Asset Management: Data justification