Definition
VLAN: Any Layer2 partitioned and isolated broadcast domain in a computer network
VXLAN: Virtual Extensible LAN (VXLAN) is an encapsulation protocol for running an overlay network on existing Layer 3 infrastructure.
Protocols
VLAN: VLAN uses the Spanning-Tree Protocol (STP) which blocks redundant paths to avoid traffic loops in the network and hence allows using only half of the available paths.
VXLAN: VXLAN uses underlying Layer 3 routing protocol to use all the available ports with technologies like ECMP (Equal cost multipath Routing) etc.
How it works
VLAN: Uses VLAN tag on Layer 2 frame for encapsulation to extend VLAN across switches.
VXLAN: Uses MAC-in-UDP encapsulation to extend Layer 2 segments across locations.
Scalability
VLAN: VLANs use 12-bit VLAN ID, which limits scalability to 4094 VLANs.
VXLAN: VXLAN uses a 24-bit ID which scales it up to 16 Million VXLAN segments
Flexibility
VLAN: Less flexible for a multi-tenant environment
VXLAN - Flexible and suitable for the multi-tenant environment, VXLAN is easier for scaling out a cloud computing environment maintaining cloud apps and tenants logically isolated.
Sources:alex moura from quora
