Azure Active Directory is "as a service" offering from Azure. I have seen documentations and content from Microsoft stating that can be used for SSO and other Web application for unified auth.
Will it be possible to make use of Azure Active Directory as replacement of Windows Server AD in Azure virtual machines in Virtual Networks? I see that the Windows Server Active Directory Installation on Azure VM involves execution from powershell and stuff?
NO! Windows Azure Active Directory is NOT a Domain Controller. You can NOT join computers to Windows Azure AD. You can use it to sync on-premises AD with Windows Azure AD to easily enable Web SSO (Single Sign On). You can use to build enterprise grade web applications.
You can read more about Windows Azure Active Directory here.