VLANS have been around ever since I have been in networking, providing a network segregation function at Layer 2.
802.1q is the IEEE standard that defines VLAN tagging. In summary a 32 bit field is added between source MAC and Ether Type field in an Ethernet Frame. 12 bits of this field were set aside for the VLAN id, so enabling 4094 vlans.
In hindsight only setting aside 12 bits to the VLAN id could now be viewed as an oversight. Today especially in the Cloud Infrastructure space, single physical topologies, have now become multi tenanted spaces each requiring their own isolated network. 4094 vlans has become a constraint.
Additionally when the VLAN concept was derived it was designed to run in a ‘localised’ environment. Today there are requirements for multiple physical environments to be logically connected at L2.
VXLAN or Virtual eXtensible LANs aim to build upon the existing VLAN concept but solve some of the problems described. Firstly the VXLAN id is 24 bits, doubling the old VLAN id field size, and enabling over 16 million VLAN ids. Secondly VXLAN extends the reach of VLAN by enabling VLANs to be transported or encapsulation over an IP, Layer 3 routed domain.
VXLAN does not represent the only solution to the VLAN limitations of 802.1Q. I hope to post on some of the other solutions available.