A law is said ro "have teeth" when that law has a significant penalty attached, or soem enforcement mechanism that will induce peopoel to obey the law. A law is said to be "toothless " or to "have no teeth" when it has no enforcement mechanism at all, or when the enforcement is so week tha it will not induce anyone to comply, people will instead comply only if they happen to choose to do so.
When the dictionary entry says:
To have enough power or support of authority to compel obedience or punish offenders, as of a law.
it means that this sense of "have teeth" is often used in regard to laws, indeed that may be the most common use of the expression. This is close to the OP's suggestion number 1.
In general, when a dictionary gives a specific sense of a word ort expression, and ads "as of X" it means that the phrase is typicallyu or commonly used to describe X, or in relation to X. For example, one might see:
- Inflated: filled with air, as of a balloon.
- Loaded: Charged with ammunition or ready to use, as of a gun.
This use of "as of" is commonly found in dictionary definitions.