Why is Azure Active Directory managing Office 365 Identity?

Office 365 uses Azure Active Directory (Azure AD) to manage user identities behind the scenes for both Office 365 and Azure. Azure Active Directory is IDaaS in the Azure Cloud. Every Office 365 subscription includes a free subscription to Azure AD so that the customer can integrate Office 365 with Azure AD if a customer wants to sync passwords or set up single sign-on with the on-premises environment.

Reference https://docs.microsoft.com/en-us/office365/securitycompliance/use-your-free-azure-ad-subscription-in-office-365