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VXLAN defines a MAC-in-UDP encapsulation scheme where the original Layer 2 frame has a VXLAN header added and is then placed in a UDP-IP packet. With this MAC-in-UDP encapsulation, VXLAN tunnels Layer 2 network over Layer 3 network.
VXLAN is one of the best methods for facilitating vMotion, a form of live migration where an entire virtual machine can switch from one physical server to another, in a matter of seconds. In summary, VXLANs have emerged to expand the functionality and scaleability of VLANs across a wide range of virtual networks.