IP forwarding enables the virtual machine a network interface is attached to:
- Receive network traffic not destined for one of the IP addresses assigned to any of the IP configurations assigned to the network interface.
Send network traffic with a different source IP address than the one assigned to one of a network interface's IP configurations.
The setting must be enabled for every network interface that is attached to the virtual machine that receives traffic that the virtual machine needs to forward. A virtual machine can forward traffic whether it has multiple network interfaces or a single network interface attached to it.
Box 1: Yes -
The routing table allows connections from VM3 to VM1 and VM2. And as IP forwarding is enabled on VM3, VM3 can connect to VM1.
Box 2: No -
VM3, which has IP forwarding, must be turned on, in order for VM2 to connect to VM1.
Box 3: Yes -
The routing table allows connections from VM1 and VM2 to VM3. IP forwarding on VM3 allows VM1 to connect to VM2 via VM3.
Reference:
https://docs.microsoft.com/en-us/azure/virtual-network/virtual-networks-udr-overview
https://www.quora.com/What-is-IP-forwarding
