Do we need Availability sets for Azure virtual desktops

If you don't add any fault tolerance then there is a chance that during host updates or in the event of a host or rack failure a number of session hosts would become unavailable. Availability sets protect against those failures by separating into fault and update domains, and give a better SLA over a single machine because of that (99.95%).

Availability Zones go further and separate by datacenter, which provide separate power, connectivity and cooling. You then pick the availability zone when provisioning. If you wanted to spread over the availability zones then you would need to use the wizard multiple times and split the session hosts over the 3 availability zones as you can only select one in the wizard when creating host pools.

One thing to remember when using availability zones is that you need to make sure that other services such as VPN gateway, ExpressRoute gateway or storage are also made Zone redundant otherwise in the event of a zone failing service to those non-protected resources would not be able to be accessed. By using Zone Redundancy you achieve an even higher SLA of 99.99% availability