Translation:What do they want on the territory?
This is the best comment in here.
Before coming to this particular discussion, I'd already decided that this was just one of those sentences we come across in DL which goes into the sezione matta "Crazy section", because that's where you will end up if you try to make sense out of it.
"Territorio" is primarily a region, a geographical or governmental area, but it also has the sense of "a tract of land." That is possibly what causes Italian to prefer "su" rather than "in." The question "What do you want on the tract (houses or green space)?" could make sense in English.
BUT the English word "territory" does not have this same sense. It is always a region. If Duo wants to use that word to translate "territorio" it can not use "on." It must be "in." If it insists on "on," it can not use "territory."
There is a similar phrase I have seen: "sulle isole" (on the islands). English would normally use "in" (we enjoyed being in the islands - a geographic location), but "on the islands" is possible (we camped on the islands - delimited pieces of land). Italian apparently doesn't make this kind of distinction, at least in the case of "territorio." Just one more thing to learn about differences in the two languages.
This is not a good English translation.
Vielleicht nicht auf Deutsch. Das Land ist doch das Land. Aber es gibt "die Gebiet" und "das Raum" und so weiter. (Und "zu Land" heißt "BY land," nicht wahr?) In English there are similar (but not the same) slight differences in "land," territory," and "region," and in all languages prepositions are difficult.
I agree that "false options" should not be offered, especially if they are perfectly legitimate, like this one. Our recourse is to report this sort of mistake. It should be corrected eventually.