what is meant by managed identity ?

 You can create a managed identity for App Service and Azure Functions applications and how to use it to access other resources.

A managed identity from Azure Active Directory  ( AAD ) allows your app to easily access other AAD-protected resources such as Azure Key Vault.

References:

https://docs.microsoft.com/en-us/azure/app-service/overview-managed-identity?tabs=dotnet

others 

Use the authentication-managed-identity policy to authenticate with a backend service using the managed identity of the API management service. This policy essentially uses the managed identity to obtain an access token from Azure Active Directory for accessing the specified resource.

After successfully obtaining the token, the policy will set the value of the token in the authorization header using the bearer scheme.