Extract taken from What is Windows Azure? (http://msdn.microsoft.com/en-us/library/dd179367.aspx):
"Windows Azure is an operating system that serves as the development, service hosting, and service management environment for the Windows Azure platform. The Windows Azure platform consists of an infrastructure of hardware, software, network, and storage resources. Windows Azure handles load balancing and resource management and automatically manages the life cycle of a hosted service based on defined requirements. Developers can build and deploy applications as a hosted service for Windows Azure by using the .NET Framework, un-managed code, or other approaches.
A Windows Azure hosted service can contain web role, worker role, and VM role instances. As its name suggests, a web role instance can accept incoming HTTP or HTTPS requests and can support web application programming hosted in IIS. Worker role instances are similar to, but not quite the same as a web role. The main difference is that a worker role instances is not hosted by IIS. Instead, they are executable in their own right. A VM role differs from a web role and a worker role, because with these roles, you focus on creating and running your code in an operating system that is managed by Windows Azure; for the VM role, you provide a pre-configured operating system image.
Applications can consist of solely web role instances, only worker role instances, only VM role instances, or a combination of all three. When the load increases for your application, you can request more instances of any of the defined roles. By running multiple instances of a role, Windows Azure helps the application scale. Scalability is achieved through virtualization. As you need to scale capacity, you can spin up new virtual machines to handle the added traffic and when the extra capacity is no longer needed you can release them. "