How to increase hard drive size?

How can I increase the hard drive size running Windows 7 inside of Parallels desktop, now that it's running out of room?

 

If your disk is in expanding format, then it will expand when needed.

Parallels Desktop 7 for Mac User's Guide

Page: 166

When you create a virtual machine, the disk is created in the expanding format. You can change
the disk format in the Hard Disk pane of the Virtual Machine Configuration dialog. To add a plain
hard disk to your virtual machine, clear the Expanding disk option when adding a hard disk to the
virtual machine.

 

Just in addition to the previous post - here is the link to documentation

You need Editing the Disk part.