The Azure Virtual Network container network interface (CNI) plug-in installs in an Azure Virtual Machine. The plug-in supports both Linux and Windows platform.
The plug-in assigns IP addresses from a virtual network to containers brought up in the virtual machine, attaching them to the virtual network, and connecting them directly to other containers and virtual network resources. The plug-in doesn't rely on overlay networks, or routes, for connectivity, and provides the same performance as virtual machines.
The following picture shows how the plug-in provides Azure Virtual Network capabilities to Pods:
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Reference:
https://docs.microsoft.com/en-us/azure/virtual-network/container-networking-overview