The question “Are Azure VMs fixed or dynamic?” comes up in every workshop I deliver. If I show folks how they are charged for storage, they all guess wrong.
Outside of Azure, virtual hard disks can use either a VHD or a VHDX format. They can also be fixed, dynamically expanding, or differencing.
The truth about Azure disks
Azure supports VHD format, fixed disks. The fixed format lays the logical disk out linearly within the file, so that disk offset X is stored at blob offset X. A small footer at the end of the blob describes the properties of the VHD. Often, the fixed format wastes space because most disks have large unused ranges in them.
IT Pros new to Azure typically guess they are dynamic because they are only being charged for the space being used.
The magic of the storage format
Azure stores .vhd files in a sparse format, so you receive the benefits of both the fixed and dynamic disks at the same time.