Q. What is the smallest subnet that can be used in an Azure virtual subnet?
A. A /29 is the smallest available in Azure which would give 8 IP addresses. However, considering a minimum of 4 are used for Azure purposes that only leaves 4 usable - which is why any smaller subnet would be of no value since no addresses would be available for use. This is confirmed at https://msdn.microsoft.com/en-us/library/azure/dn133803.aspx. Since the address space you use in an Azure virtual network can really be anything you want there should not be a problem in having subnets of at least this size and still not run out of IP addresses.