The Azure Fabric Controller functions as the kernel of the Azure operating system. It provisions, stores, delivers, monitors and commands the virtual machines (VMs) and physical servers that make up Azure.
According to Dr. Mark Russinovich, a Technical Fellow working on the Windows Azure team, "The Fabric Controller, which automates pretty much everything including new hardware installs, is a modified Windows Server 2008 OS..."
The generic term fabric is a synonym for framework. Microsoft uses it in a proprietary manner to describe the servers, high-speed connections, load balancers and switches that make up the Azure cloud computing platform. The term fabric controller can generally be applied to any component that manages complex connections, but such components are often called by proprietary names. For instance, the OpenStack Compute fabric controller is called Nova.
Learn more about Azure Fabric Controller
Azure actually works, courtesy of Mark Russinovich
The FC has two primary objectives: to satisfy user requests and policies and to optimize and simplify deployment. It does all of this automatically.