
Explanation:
NIC configured DNS servers takes precedence over VNET configured DNS servers.
Box 1: Yes
VM1 uses the VNET configured DNS 193.77.134.10.
You can specify DNS server IP addresses in the VNet settings. The setting is applied as the default DNS server(s) for all VMs in the VNet.
The DNS is set on the VNET level.
Box 2: No
VM2 uses the NIC configured DNS 192.168.10.15.
You can set DNS servers per VM or cloud service to override the default network settings.
This VM has 192.168.10.5 set as DNS server, so it overrides the default DNS set on VNET1.
Box 3: Yes
VM3 uses the NIC configured DNS 192.168.10.15
You can set DNS servers per VM or cloud service to override the default network settings.
This VM has 192.168.10.5 set as DNS server, so it overrides the default DNS set on VNET1.
Reference:
https://docs.microsoft.com/en-us/azure/virtual-network/virtual-networks-faq#name-resolution-dns