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I am unable to understand what incremental backups are in Azure and they work. Also, if the retention policies are taking a backup daily then after a week will the backup be deleted? How are we supposed to get the data back from the recovery of the backup?

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Incremental Backups only back up the resources that have changed since the previous timestamp. Keeping both Incremental backups and full backups is the ideal way of working.

Here is an image to clarify how each of the backup types are different from one another 

Retention policies are only applied to backup points such that each backup point is behaving like a full point. 

To learn more about Microsoft Azure check this azure training out!

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