Microsoft SQL Azure Database is a cloud-based relational database service that is built on SQL Server technologies and runs in Microsoft data centers on hardware that is owned, hosted, and maintained by Microsoft. SQL Azure Database does not support all of the features and data types found in SQL Server
Similarities and Differences
1.  Similar SQL Server on your premises, SQL Azure Database exposes a tabular data stream (TDS) interface for Transact-SQL-based database access.  
2.SQL Azure Database supports many SQL Server 2008 data types; it does not support data types that have been deprecated from SQL Server 2008.
3. Because SQL Azure Database is a service, administration in SQL Azure Database is slightly different. SQL Azure Database abstracts the logical administration from the physical administration; Microsoft administers the physical hardware such as hard drives, servers, and storage. This approach helps SQL Azure Database provide a large-scale multi-tenant database service that offers enterprise-class availability, scalability, security, and self-healing.
4. Using SQL Azure Database, DBAs manage schema creation, statistics management, index tuning, query optimization, and security administration (logins, users, roles, and so on).
5. Analysis Services, Replication, and Service Broker are not currently provided as services on the Windows Azure platform.
6. SQL Azure Database automatically replicates all data to provide high availably.

7. SQL Azure Database also manages load balancing and, in case of a server failure, transparent fail-over.
SQL Azure Architecture
Microsoft SQL Azure Database is hosted on servers running SQL Server technologies in Microsoft data centers. From an architectural perspective, there are four distinct layers of abstraction that work together to provide a relational database for your application to use: the client layer, the services layer, the platform layer, and the infrastructure layer.

The Client Layer
The client layer resides closest to your application, and is used by your application to communicate directly with SQL Azure. The client layer can reside on-premise in your datacenter or be hosted in Windows Azure. Because SQL Azure provides the same tabular data stream (TDS) interface as SQL Server, you can use familiar tools and libraries to build client applications for data that is in the cloud.
There are many options available to your application for communicating with SQL Azure. For more information about tools and driver support, see Tools and Utilities Support (SQL Azure Database) and Guidelines and Limitations (SQL Azure Database).
The Services Layer
The services layer functions as a gateway between the client layer and the platform layer, where the data resides. The services layer provides three functions: provisioning, billing and metering, and connection routing.
The services layer provisions the databases that you specify with your Windows Azure platform account. The billing and metering aspect of the services layer enables multi-tenant support by providing monitoring and billing for database usage based on individual Windows Azure platform accounts. SQL Azure is built on a scalable platform involving numerous physical servers; this layer handles all the connections routing between your application and the physical servers where your data resides. 
 
The Platform Layer
The platform layer includes the physical servers and services that support the services layer. The platform layer consists of many instances of SQL Server, each of which is managed by the SQL Azure fabric.
The SQL Azure fabric is a distributed computing system composed of tightly integrated networks, servers, and storage. It enables automatic failover, load balancing, and automatic replication between physical servers.
Management services monitor the health of individual servers and enable automated installation of service upgrades and software patches.

Infrastructure Layer
The infrastructure layer represents the IT administration of the physical hardware and operating systems that support the services layer.