I bet this one is more intimidating in the wording than in practice, but that's the GMAT for you.
In every 5 minute interval, the car increases speed by 5 mph. The first interval, the car is traveling 20 mph and we want to know the DISTANCE the car travels IN the third 5 minute interval.
To figure distance, we need to know RATE and TIME. The time intervals are constant at 5 minutes so we need to figure the RATE in interval 3 to calculate distance in interval 3.
Interval 1: RATE = 20 mph (given)
Interval 2: RATE = 25 mph (problem says it'll increase 5 mph in each successive interval)
Interval 3: RATE = 30 mph
So, to calculate distance (D=RT), D = 30 mph * 5 minutes. Since the units of time aren't the same, you have to fudge with one so you can do either:
(1) D = 30 mph * 5/60 hour (or 1/12 hour)
(2) D = 30/60 miles per minute * 5 minutes
Either way, you get 2.5 miles
Hope this helps, good luck!