The documentation refers to using a DNS Forwarder in Azure, not a Custom DNS server. From here - https://github.com/dmauser/PrivateLink/tree/master/DNS-Integration-Scenarios#41-which-conditional-forwarder-zone-should-be-used "On most of On-premises DNS servers fall on that category of they will have a forwarder setup to point to another DNS server in customer's DMZ or point to ISP DNS Servers. That is the most common scenario we see running on customers as shown below where the question raised is: Which zone should I configure Conditional Forwarders from my OnPrem DNS Server? The short answer it depends how your OnPrem DNS is configured. You may have an option to configure conditional forwarders to the PaaS domain zone or subdomain zone private link returned by the CNAME. In our context here for storage accounts that would be either blob.core.windows.net or privatelink.blob.core.windows.net"
In short, whether you have a whole bunch of recursive queries and a chain of DNS forwarding with the on-prem DNS server Vs the on-prem DNS server doing a direct DNS resolution.