Can use the bare metal install when running the VM's or are legally licensed to use though are very different things.
Microsoft does specify some allowed usages somewhere , e.g. File services when providing space for hyper-v
while server 2016 licencing is a bit different from the past. it still similar enough.
if I understand it properly
the only other role you can run on a base (HOST on baremetal ) install is File Server role.
this allows you to use the local storage of the physical machine to be shared for the rest of the framework and eliminate need for SAN and other external storage solutions. nothing else is allowed if you are running Hyper-V role on the bare metal.
so in regards to OP:
you can legally install Server 2016 Essentials instance on bare metal.
add a File Server role and Hyper-V role to it and add a single VM with Server 2016 essentials running on it.
all other roles that you need can be added to the VM instance on the server.
the AD/DC role can only be added to the VM instance on THAT server. it can not be added to the HOST.
not that said, the licence does not prevent you from adding other VMs to the server, however if the VM OS is windows it needs it's own licence to be activated.
as far as I can tell there is no mechanism to stop you from creating and running the VM in the Host OS
just the fact that the VM OS will not activate if a valid license is not entered in registration module.
the one (1) VM of Essentials 2016 server will auto activate using the Host lic. key against host lic. activation server.
if you splurge for Standard Lic. you get two(2) VMs that will auto activate against Host.
also , and I am not sure if it works for essentials but if I have to guess it does not, with standard SKU
you can add additional standard lic. keys to the host to increase VM count if needed. each additional Lic gives you 2 VM rights. but I would count the total number of Windows VM planned, as at some point it simply more cost effective to get a Datacenter lic than playing with Standard.
by all counts if your needs will push you over 14 VM per host get the Datacenter lic.
simple math for
MS Windows VMs on single Host per licence: (you can run any number of non windows VM as they require their own activation and licencing )
Datacenter = $6,155 any number of VMs
Standard = $882 == > 2 VMs per Lic so a 14 VM will require 7 standard lic (2x7=14) 882x7 = 6,174