“You are all doing very well,” said Mr. Jones.

The correct answer is C. Mr. Jones said that you are all doing very well.

The pronoun “you” is used to refer to the second person, which in this case is the students. The verb “are” is used to refer to the present tense, which means that Mr. Jones is saying that the students are currently doing well. The adverb “very” is used to emphasize the fact that the students are doing very well.

The other options are incorrect because they do not accurately reflect what Mr. Jones said. Option A is incorrect because it uses the pronoun “we,” which refers to the first person. Option B is incorrect because it uses the pronoun “they,” which refers to the third person. Option D is incorrect because it uses the verb “were,” which refers to the past tense.