Explanation:

The figure may be labelled as shown.

The squares composed of two components each are BJMI, CKMJ, DLMK and AIML i.e. 4 in number.
The squares composed of three components each are EBMA, BFCM, MCGD and AMDH i.e. 4 in number.
The squares composed of four components each are VWBA, XYCB, ZA1DC and B1C1AD i.e. 4 in number.
The squares composed of seven components each are NOJL, PQKI, RSLJ and TUIK i.e. 4 in number.
There is only one square i.e. ABCD composed of eight components.
There is only one square i.e. EFGH composed of twelve components.
Total number of squares in the figure = 4 + 4 + 4 + 4 + 1 + 1 = 18.

Hence, option 3 is the correct answer.