Expanding disk is a file that stores an image of an expanding virtual disk and resides on your host OS. An expanding virtual hard disk image file is small initially, its size grows as you add applications and data to the virtual hard disk in guest OS.
Upon creating a new virtual machine, by default, the hard disk will have an expanding format. In terms of guest OS, the virtual hard disk capacity is fixed and equals the amount that you've specified during virtual machine creation. Using disks in this format saves space on your physical computer's hard disk.
For example, if you pre-configured your virtual machine's expanding disk size to be set to 64 GB. After Windows installation, only initial 15 GB on your virtual hard disk will be occupied. With the expanding drive, the actual footprint of the .hdd file in Finder will be the same 15 GB. As you add files and install programs, the drive file will expand to contain them, up to 64 GB.
If you need your expanding disk to be larger than 64 GB, go to the virtual machine configuration > Hardware > Hard Disk > Edit. Increase the size of the image file, then click Apply.
Check this blog post for more information about the hard disk resize procedure.
What if I want to disable Expanding disk feature?
By disabling this feature your disk will be converted from Expanding to Plain format. 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 space is used by the virtual machine increases.
More than that, to disable Expanding disk feature you will need twice more disk space than your virtual disk capacity is, i.e. if your disk is 64Gb size in the configuration, you will need at least 128GB of free space on your Mac for successful conversion.
In order to change virtual hard disk from Expanding to Plain:
Shut down the virtual machine (Actions > Shut down).
Locate your virtual machine in Finder.
Right-click on the *.pvm file of your virtual machine -> select Show Package Contents.
Open Finder > Applications > Utilities and launch Terminal. Type the following but do not execute:
prl_disk_tool convert --hdd
Drag the *.hdd file stored inside the *.pvm bundle into Terminal and drop it right next to "prl_disk_tool merge --hdd " and add "--plain" in the end. In Terminal the command will look like this:
prl_disk_tool convert --hdd /Volumes/New\ Volume/Parallels/Windows\ 10.pvm/Windows\ 10- 0.hdd --plain
Note: there should be a space between '--hdd' and 'Users/Username...' and also between '10-0.hdd' and '--plain'
Press Enter key to run the command.
If you have a plain disk and need to switch it to expanding you need to add "--expanding" instead of "--plain" in the end so the command would be something like:
prl_disk_tool convert --hdd /Volumes/New\ Volume/Parallels/Windows\ 10.pvm/Windows\ 10-0.hdd --expanding