When you place your VMs in an Availability Set, Azure guarantees to spread them across fault and update domains. By default, Azure will assign three fault domains and five update domains (which can be increased to a maximum of 20) to the Availability Set.
When spreading your VMs over fault domains, your VMs sit over three different racks in the Azure data center. So, in the case of an event or failure on the underlying platform, only one rack gets affected and the other VMs are still accessible.
VMs spread over three fault domains
Update domains are useful in the case of an OS or host update. When you spread your VMs across multiple update domains, one domain will be updated and rebooted while the others remain accessible.
VMs spread over five update domains and three fault domains
