Azure CNI Overlay simplifies managing cluster nodes and pods within an Azure Virtual Network (VNet) subnet. Nodes are placed directly in the VNet subnet, while pods get IP addresses from a separate private CIDR. An Overlay network handles pod and node traffic within the cluster. To reach external resources, the node's IP address is used for Network Address Translation.
This method conserves VNet IP addresses, making it easy to scale your cluster to larger sizes. Plus, the private CIDR can be reused in various AKS clusters, significantly increasing the IP space for containerized AKS applications.
To learn more, visit: https://learn.microsoft.com/en-us/azure/aks/azure-cni-overlay