Parallels for macOS lets you create macOS virtual machines out of the box with the most current version of macOS, but not previous ones. Fortunately, you can install a previous version of macOS if you are willing to use Parallels from the CLI.

First, you will need to download an IPSW file with the macOS version that you want. You can find them at https://mrmacintosh.com/apple-silicon-m1-full-macos-restore-ipsw-firmware-files-database/ https://ipsw.me/product/Mac

Check the URLs: they should be direct from Apple.

Starting with Parllels 20 the command line commands changed. Here are the two commands you need to create a macOS VM with a custom hard drive size:

prlctl create sequoia --ostype macos --no-hdd --restore-image ~/Downloads/UniversalMac_14.6_23G80_Restore.ipsw
prlctl set sequoia --device-add hdd --type plain --size 512000