Microsoft has made it easy for the developers to develop Windows Azure applications on their local machines. When the Windows Azure SDK and tools are installed, a basic simulation of the Azure compute and storage services is included. This gives the developers the ability to run and debug Azure applications locally.
The compute service is simulated by spawning multiple instances of the role, rather than provisioning multiple virtual machines. The system is still limited by the resources of the development machine. So, creating 20 instances of a role would result in a degraded performance.
Storage services are simulated by creating REST endpoints on the local development machine. While developing applications, the endpoint URL just needs to be set to the local endpoint. These endpoints are only accessible from the local machine and are not exposed on the network.
SQL Azure is not directly simulated, but can be done by connecting it to a local Microsoft SQL Server...