An expanding disk in Parallels VM is a disk that 'expands' the file that is the disk in the Primary OS so that you can save some disk space on the real hard drive.
Concerning VM, the disk has a fixed max size, just like a real drive does. Expanding disks do not expand from the point of view of the Guest OS. FAT32 and NTFS file systems assume (and most other types also) that the size of a disk will not change while it is running because real hardware can not change its size. Because of this assumption, you can not change the size of a partition while Windows is running.
The main difference between plain and expanding disks is that plain disk momentarily takes all of its total size on the real hard drive, while expanding disk increases in size on the real hard drive only when the actual amount of used space in VM increases.