A proximity placement group is a logical grouping used to make sure that Azure compute resources are physically located close to each other. Proximity placement groups are useful for workloads where low latency is a requirement.
More information can be found here.
Given that proximity placement groups need to create resources that exist in a single data center, the amount of resources one requests may not be available and may return errors when trying to create your cluster using the terraform code provided here. If that does happen, you will need to look at adjusting your cluster or find a region more suitable for the deployment you're looking to create.
More information can be found here.
The examples file has both the min_nodes and max_nodes set to the same value which will, as noted in the docs above, request that all resourcs for a given node pool be created at once in the same data center and also disable autoscalling for this node pool as all resources are created from the begining.