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The statement that Azure Information Protection (AIP) classifies documents and emails by applying labels to them accurately reflects the primary functionality of AIP. AIP is designed to help organizations protect sensitive information by applying various levels of security protocols, such as encryption and access controls, based on the classification label assigned to a document or email. This classification system allows users to easily identify the sensitivity of the information they are handling and ensures that appropriate safeguards are in place.

When users apply a label, it can trigger specific actions such as encryption, watermarking, or restrictions on sharing. Labels can be manually applied by users or automatically applied based on predefined rules set by administrators. This ensures a consistent approach to data protection across the organization, enabling compliance with regulatory requirements and organizational policies.

The other options do not accurately describe the functions of AIP. For example, AIP does not require all readers of Office documents to have Azure Active Directory accounts, nor does it send text messages for logins or encrypt virtual machines. Therefore, the focus of AIP on the classification of documents and emails through labeling is what makes this statement correct.