I'm thinking of installing parallels on my mac, but I'm not too sure if I should. My only concern is that if I allocated a certain amount of memory to my virtual machine, say 512mb, will that memory only be allocated to the virtual machine when it is in use? or will that memory be permanently allocated to the virtual machine leaving me with only 512mb memory while using Mac OS?
The way VMware Fusion, and most virtualization solutions, handle memory, your virtual machine's memory is only utilized when the virtual machine is running.
However, when you are running your virtual machine, any memory allocated to that VM will not be available to the host OS. So it's important to have enough to support what you're doing in your VM, and what you're doing in the host OS.
1 GB of RAM is probably a little thin, in case you find yourself using your VM, and then a bunch of Mac OS X applications too.
Another gig of RAM would probably make your experience stronger.
~VMware Fusion Team