This links to the announcement and has some speculation about how it's implemented. It looks like it might be basically a snapshot and a fast host reboot? https://www.petri.com/new-azure-iaas-features-announced-augu...

Probably means that upgrades are done in-place. They don't move the VM between machines, but they do something like move it from the old process to and upgraded version (or in some other way upgrade the software underneath).