Absolutely, when you conduct load testing, real HTTP requests are sent to the specified system. To illustrate, if you configure a test with 500 virtual users, Azure Load Testing will emulate 500 users who will send actual requests to your .NET Web API. As a result, your .NET API would relay these requests to Dynamics 365.
In the context of Azure Load Testing, the term "simulate" refers to the mimicking of human user behavior. That is, while the actions a user may take while interacting with your app are automated, they do send genuine requests. It's critical to understand that, even though these requests come from "virtual" users, your system treats them as real traffic. You should be aware that detecting such automated traffic may cause your system or its dependencies to behave differently.
The primary goal of load testing is to determine how well your system handles high demand; therefore, it is critical to observe not only the app being tested but also any associated systems. This gives you a comprehensive picture of the load's impact. It's important to remember that if Dynamics 365 isn't prepared or configured to handle this influx of requests, you may run into problems. As a result, when performing load tests, especially in production or shared environments, it is critical to plan and communicate effectively.