Thank you for reaching out.I understand you have a question regarding Azure IP address 168.63.129.16 Azure DNS IP.
The IP address 168.63.129.16 is owned by Microsoft and is the default DNS of azure services. By this I mean if you set the default DNS option above, then the DNS resolution happens using this IP address i.e it enables communication with the DNS virtual server. Now when you keep default option then you can resolve the VM's deployed in the same virtual network using <vmName>.internal.cloudapp.net to their private IP address. This domain is internal to Azure and cannot be changed. This is actually very well explained in John Savill's video here (4:00 - 10.11)
Based on your question above
In Azure Vnet when we add the custom DNS, does virtual machine in that Vnet can we resolve name resolution to Azure resources ?
This depends actually on if you have custom DNS server deployed in your VNET which can resolve the resources with their own custom domain names. For this you have create zones and manage records for all the resources.
And if no needed then is there any situation we need to add the 168.63.129.16 IP address to the Vnet Custom DNS server ?
No, I do not think there will be a scenario where you will need to add the 168.63.129.16 IP address to the Vnet Custom DNS server, as this is the default option.
Hope this helps! Thank you!
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