> ... whereas the term "defragment" refers to reducing space on a given drive...
not quite so. I hope I'm not too pedantic with this ;.)... Defragmentation re-arranges the order of the individual pieces of files on a hard drive. Every file is being brokent down into pieces as it's written on the disk, that's the nature of how hard disks are formatted. Let's imagine your write a bunch of files to your disk. While you do that, file "MyDocument" is broken into pieces A,B,C as it's written to the disk. The file "MyPhoto" is broken down into "D,E,F,G", and "MySong" into "H,I,J,K,L,M". The sequence of pieces is A,B,C D,E,F,G H,I,J,K,L,M.
Now you erase "MyPhoto". The sequence is now: A,B,C, (Hole), H,I,J,K,L,M.
Next, you add the file "MyMovie"; it's broken into the pieces N,O,P,Q,R,S,T,U,V,W.
The beginning of this file neatly fits into the hole left by the former MyPhoto, and the sequence is: A,B,C N,O,P,Q H,I,J,K,L,M,R,S,T,U,V,W.
Defragmenting means that the system re-arranges the pieces to put the individual fragments of your files together in the proper sequence, so that - after defragmentation - the sequence reads A,B,C H,I,J,K,L,M N,O,P,Q,R,S,T,U,V,W.
So - no space is reduced or made free during defragging; only the pieces of files on your disk are re-arranged, which in old times made reading files into memory faster as the disk head didn't have to move all across the disk for the individual pieces. Also, there used to be programs that needed contiguous free space for operating properly, such as e.g. software that would record music or video - they don't need contiguous free space any longer since computers (and disks) have become so fast.
The point Apple is making is that with today's caching (and pre-fetching) technology built into hard drives and operating systems, having the bits and pieces of individual files all over the place on the disk doesn't matter - there's no significant performance hit. (I guess that's debatable if your disk is very full and very fragmented).
When Parallels say "Compress disk", they more than just invoke the (Windows) disk defragmentation: They actually erase the "free" bits from an expanding virtual disk file so that that file becomes smaller, thus saving space on the host's (the Mac's) hard dis. To get the free bits in one piece they first have to defrag the disk, otherwise the process would take ages (make a copy of the entire hard drive file, remove a tiny piece of free space from it, copy it again, remove another tiny piece etc.).
Again, I hope I'm not pushing it, I just wanted to make clear that defragmentation has nothing to do with freeing up space on a disk. It just makes it a bit easier and thus faster for the OS to fetch or write a file.
Cheers!