How to...
You need to install the Parallels Tools. These will install a few extra goodies that improve your user experience. One is a video driver, another is a sound one.
To install these you need to have the virtual machine running and then Ctrl+Alt out of the machine and select "Install Parallels Tools" from the menu. This should, after a slight pause, start the installshield in Windows that will step you through installing those tools and require you to restart. After the restart you should have sound.
If you do not at that point have sound go to your Control Panel (In Win98) and open the System program. Look for your sound card and see if it has a yellow question mark next to it. If so, view it's "Properties" and press the "Reinstall Driver" button. The driver can be found on your Win98 machine's hardrive in Parallels-->Sound.
Enjoy!!