Hi Vivek,
When you purchase a VM reservation, it is for the VM instance with no OS included. The reservation can be applied to a VM running Linux, Windows Server, Windows Client, etc.
This is a nice feature in that it allows you freedom to run whichever OS you want and still receive a discount for the underlying compute instance.
When running one of the free versions of Linux, the reservation price covers the full price for compute, since there is no additional cost for the operating system. When running a non-free operating system such as Windows Server, there is an extra charge that isn't included in the reservation.
The cost of using non-free operating system may be covered by Azure Hybrid Benefit (AHB) if applicable.
In my experience there are a small number of VM instances where the instance flexibility group has Linux in its name. For example, DCsv3 is one that comes to mind. I've not noticed any difference in behavior due to having "Linux" in the name in that it still has expected behavior for other sizes in the group.
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Thanks.
-TP