This option only seems to work with GNOME-based Linux distros: for example, it works with Ubuntu and Ubuntu Unity, but doesn't work with Ubuntu Studio, which is KDE-based (no apps folder is shown in the Dock, even if the Parallels Tools are correctly installed). So, is this a bug, or a "feature" (rather, a limitation, in this case)...?
BTW, doesn't work with Cinnamon (Ubuntu, Mint), either: so, it's evidently an incomplete feature; and that's probably why it's disabled by default...
BTW, nothing has changed in Parallels Desktop 19: showing Linux app folders in the Dock still only works with GNOME; but not with KDE, Cinnamon, etc.: quite disappointing...