The Azure Guide/Azure Active Directory

Azure Active Directory can be thought of as a successor to the long-standing Active Directory feature that can be used to manage networked computers, but cloud-based and far more versatile.

Active Directory
It is a set of services that run on Windows Server that can be used to manage computers and assign permissions. A simple example is that of virtually any business - a higher ranked member will have higher permissions than a lower-ranked one - and AD can be used to set up user accounts for the whole network. Some examples of the services leveraged include Lightweight Directory Services, Certificate Services, Federation Services and Rights Management Services and so on.

Need for Azure
While immensely powerful, Active Directory is beset with limitations and its relative lack of interoperability with non-Windows users. While Microsoft has Active Directory Federation Services as an alternative, an alternative was needed. There's where Azure comes in.

As we already know, Azure is the default hosting platform for Office 365 services. This means that Azure AD can be used to integrate multiple Microsoft services easily - for instance, it is possible to associate a user with an Office 365 account and an account which they can use to log in into the company servers.

While Azure AD does have a free tier, there are premium options available which enable additional features and advanced management options, amongst others.

The Office AD website provides a good explanation:

Azure AD can also be used by app developers to enable single sign on (SSO) integration with their applications, which is not possible with AD alone.