Recently I have read some news articles that states Microsoft is working with Docker to make docker run natively on Windows Server.
The thing I want to ask is, will this allow Windows applications to run inside docker containers, or is this just a way to run the already availble library of docker images (which runs a specific subset of a linux derivative inside them) to run on Windows without the use of a VM?
It's about running Windows containers in Windows hosts.
Linux containers will still need to run on Linux (or within a Linux VM on a Windows host, but you can already do that today, with boot2docker).
Here is a source from Microsoft. Note the diagram.
Windows Server has one feature called
Windows Services for UNIX (SFU) or Subsystem for UNIX-based Applications (SUA)
This as a kernel extension of Windows but is minimal.
I believe this is possible if Microsoft change these "kernel extension" to be compatible to Linux most recents kernels, to do one "think" that can run some user-mode Linux applications.
Last update for Windows Server 2016 TP3
https://msdn.microsoft.com/virtualization/windowscontainers/containers_welcome