I assure you, I don't know everything. Some would say I know barely anything, and I wouldn't put up much of an argument.
It (kind of) depends on how you setup XP in Parallels. There are two choices for the size of your virtual hard drive - Expanding and Plain. Expanding means that if you set it to (for arguments sake) 10GB, the .hdd file will only be as large as Windows itself. So if Windows (and all the files you added to Windows, like Firefox, MP3s etc) takes up 5GB, the .hdd file will be 5GB. As you add more files, the .hdd will grow in size, to a maximum of 10GB. Hence the "expanding" name.
There's also "plain" - if that was the option you went with (not the default) then Parallels immediately creates a 10GB .hdd file, even if XP is only using 5GB of it.
In Parallels, if you select the Configuration for XP before you start the OS, you can configure certain aspects of the "Hard Disk" (.hdd). Unfortunately increasing its size requires that you wipe all the data from that file first (select Hard Disk then choose the Advanced tab and use Recreate). That's basically the same as just deleting your XP from Parallels and recreating it, using a larger size for the .hdd/hard drive.