Allocating memory for 2 virtual machines

Due to the use of a sewing program that runs well on XP, I will be making 2 virtual machines. One with Xp and one with Windows 7. I will be using Parallels 5.0 I have 4 GB of RAM. My question is how much to allocate to each VM? The 2 VM's will never be in use at the same time. The sewing program does need 1G to run.

Does it physically divide up the ram so each part(Mac, VM1 and VM2) can only use that amount or does parallels make virtual memory to use as well?