The second answer choice contains a vague pronoun reference. The pronoun hers could refer to Amy's or Katie's.
Amy told Katie that the fleece jacket on the bench looked like hers.
The first answer choice shows a possible correction for the vague pronoun reference. The text has been rewritten so that the meaning is clear.
The fleece jacket that Amy saw on the bench looked like Katie's.
Which of the following contains a vague pronoun reference?
A: The fleece jacket that Amy saw on the bench looked like Katie's.
B: Amy told Katie that the fleece jacket on the bench looked like hers.