All of our windows desktop machines use it as their login controller, but I’m not 100% sure of the implementation- it is likely there needs to be a local login server because from what I remember of Windows it’s using WINS to find a logon server, and that I think must be local.
It’s actually a new-ish “credential provider” system for logging into Windows. It’s not just Azure AD either, Gsuite can be used for logging into and managing Windows now. There is no longer a need for a local domain controller either.
Oof, WINS is some super antique stuff. The (traditional) process to find and select a domain controller is known as "DC Locator"--or else search for DsGetDc--and is essentially DNS-based.
Caveat, I've been out of the Windows/AD game for 7+ years!
For systems expecting LDAP and Kerberos you can use either AAD Domain Services (a read-only DCaaS) or an on-premises AD controller.
It’s definitely not AD and isn’t compatible with many things that you’d expect. They just repurposed the name