VXLAN is primarily used for Layer 2 network isolation over a Layer 3 network, allowing for the creation of a large number of isolated Layer 2 networks across geographically dispersed data centers. This technology is essential in scenarios where you need to extend the same Layer 2 domain across different data centers without physical connectivity limitations. Choice 'Extending Layer 2 domains across multiple data centers' directly reflects the capability of VXLAN to extend network segments over a Layer 3 infrastructure, which is crucial for large and distributed network architectures. Other options, while feasible in certain contexts, do not specifically leverage the unique Layer 2 encapsulation capabilities of VXLAN.
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Why is VXLAN better suited for modern data centers compared to traditional VLANs?