The regions (A) and (B) correspond to a distance so large that the `states' of the electrons are already different due to the differences in position. So there is no violation of the Pauli exclusion principle even if multiple electrons are at the same energy. Due to L-S coupling (card5), there is a slight gap between the energy of the s and p orbitals belonging to the same principal quantum number. As there are two s electrons per atom, we have 2N s electrons inhabiting the 2N s states having energy value shown in (B) (states identified by the N different position vectors). Similarly, (A) represents 2N p electrons spread out among the 6N p states provided by the N atoms.
As we move the atoms close together, the only way to still satisfy the exclusion principle is to shift the energies of the electrons slightly up and down so that they can be considered to be in different states. Thus, in the region (C), we still have 2N electrons in 6N states, but now the states are identified through N splits in energy of the p states. Similarly, in (D), we have 2N electrons in 2N states formed by splitting the s state.
Since N ~ 1023 cm-3, the total required spread may go to the electron-Volt range. This leads to band formation.
When we go even closer, these p and s bands will overlap and the 6N upper states and the 2N lower states merge to give 8N levels with half filling. The 4N electrons can now neither be identified as s or p; nor can they be considered to `belong' to any particular atom. So we get a collective tetravalent behaviour.