Well parralels comes with a image tool which you can find in its folder in the applications folder. You can use it to make images of CD's if for some reason your parallels is not reading the CD.
For the past 2 days, everytime i clicked run for the VM my macbook would either crash or say something about not being able to boot the cd. I tried my windows 98 cd and it worked fine but i didnt want 98. I looked around on some documentation and saw that there was an imaging tool but i didnt think this was to take a direct image of my cd.
After you have the image instead of using default cd/dvd to boot you can choose to boot with the .iso mounted. After doing that it worked the first try!