can it (dropdown menu ) be used to set up a question,with one of the options as a right answer.
If yes,can i get a layman explanation.
same question for other things in forms _object library (excluding button)

Kunal the simple answer is no, not without you actually making the page yourself.
You need to read about XML and XLST to understand how the pages are rendered at run time to make a 'real' drop down.
However given the range of components available in courselab you could make a page which looks like it has a drop down but really has a pop up. They are really very similar in efective action on a page.
Trap what the user clicks and update the course variables and you'll have something that does what you are after.
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Now you're going to ask exactly how do I do this and I'm going to say sit down and draw out what you want to happen (plan it on paper, broken down into steps) then look at the available objects and actions to see which fits each step.
Read the documentation regarding use of variables (then practice and apply it to working examples) and then apply that to the objects you've used.

Although i get no idea how to proceed from the above explanation.If you could kindly send me one page with source code as given in the showcase section showing how if i select one option(menu option), one picture will appear while selecting other option another picture would appear.
I will try to reverse engineer and understand. Kindly help.

Kunal I am not going to write you a solution but I will give you a few more pointer. YOU need to read, study and master the tool (courselab) you are using.
So on the page there will be a text object which has an outline. This looks like the top part of a drop down list.
It has an action associated with it, on click or on mouse over a further text block appears. This is set to appear in a position that makes it look like a drop down has appeared.
So far this is very very basic stuff.
Now you just need to capture the user clicking the texts on the faux drop down.
A hot spot will do for starters.
A click on this will have actions to update the score variable and if you are using it success status.
the final action in the chain will be to hide the faux drop down.
It is honestly very simple to do!!

Thank you