Windows partition/drivers

I am thinking about buying/installing Parallels Desktop for running Windows XP on my iMac (OS 10.4.11).

If I understand correctly, Windows XP will basically run under Mac OS (through PD), right?

I read somewhere that I have to install Windows XP inside the PD application. What will happen when Windows XP formats and created the partition it needs (inside PD)? I mean, is all the current data on my iMac safe? Will Windows XP actually create and format a real partition (inside PD) or is this done virtually?

Furthermore, how about the drivers for the hardware inside my iMac? Will Windows XP use the mac drivers (for let's the Airport netwerk card) or do I need to install seperate drivers (under Windows) for that?