What is Azure Instance Metadata Service (IMDS) ?
Azure Instance Metadata Service (IMDS) is used to retrieve the metadata about the Azure virtual machine and the Azure services details by running API calls.
Microsoft is using 169.254.169.254 non-routable public IP to provide metadata information which will be accessible only from running Azure virtual machines. (by default this communication is allowed from Az vm to IMDS IP, unless there is block at client vm level).
Metadata information includes the SKU, storage, Availability set, Update domain, Fault domain, Placement group, network configurations, upcoming maintenance events, etc.
This will be useful when – Marketplace vendors want to ensure that their software is licensed to run only in Azure. If someone copies the VHD out to on-premise, then they should have the ability to detect that. By calling into Instance Metadata Service, Marketplace vendors can get signed data that guarantees response only from Azure.
Microsoft will use TLS certificates for this communication from virtual machine to IMDS IP (169.254.169.254).
Refer link for more information on this.