I found this in the User Guide:
Enlarging a Virtual Hard Disk
Enlarging of a virtual hard disk is a two-step procedure:
- Increasing the size of a virtual disk with the help of Parallels Image Tool, see the Modifying Hard Disk Image (page 203) topic. After this, if the disk is in plain format, Finder will show that the disk file has increased its size. If the disk is in expanding format, Finder will show the same size of the disk file.
- In the guest operating system the added space appears as a chunk of unpartitioned space. To use this additional unpartitioned space, you should do one of the following:
- either create a new partition on this unpartitioned space,
- or expand one of the partitions you already have.
Warning. Please back up your virtual machine by copying its files to a safe location before you start to enlarge its hard disk. This may help you to restore the virtual machine if something goes wrong with enlarging.