A service for defining, assigning, and managing rules that Azure resources must comply with. It can audit current state or block the creation of non-compliant resources.
Used for governance in AZ-104 and AZ-900. Example: a policy that requires every VM to have tags. Difference from RBAC: RBAC controls who can do what; Policy controls which configurations are allowed regardless of who is doing it.
Azure Policy is a concept that can show up on the exam. Check the full guide to see it in context.