The relative clause "which destroyed Lisbon in 1755" should not be set off by commas. If the modifier is essential, we do not use commas. If the modifier simply gives us extra information (but we can still understand the main idea of the sentence without it), then we use commas. An easy way to see if commas are necessary is to remove the modifier entirely:

Of all the earthquakes in European history, the earthquake is perhaps the most famous.

This sentence does not make sense without the modifier (which earthquake is the most famous?), so it is considered essential. Thus, we do not use commas.

The correct answer also asks us to replace "which" with "that". Can you give an explanation for this change?

Thanks

"Which" is used for nonessential modifiers, and "that" is used for essential modifiers.

My workouts, which involve heavy weightlifting and sprinting, leave me exhausted. (We can still understand that my workouts leave me exhausted without the modifier)

Workouts that involve heavy weightlifting and sprinting are exhausting. (The sentence loses meaning without the modifier)