Many Parallels Desktop features depend on a virtualization engine and guest OS architecture and must be developed nearly from scratch for the Apple M1 chip: starting from running an OS itself, graphics, the ability to suspend/resume a virtual machine, seamless integration, Coherence mode, Shared Folders, and many more.
The company says it continues to focus on expanding the capabilities of Parallels on M1 Macs as well:
ARM32 applications do not work in a virtual machine. 
It is not possible to use the “close” button when a virtual machine is running – shut down the virtual machine instead. It is not possible to suspend and resume a virtual machine, including reverting to a “running state” snapshot. Parallels 13 supported guest install#
It is not possible to install or start an Intel x86 based operating system in a virtual machine. Parallels points out some limitations with the first version of the Parallels 16 Technical Preview for Apple Silicon Macs: The company says that it created a “new virtualization engine that uses the Apple M1 Mac chip hardware-assisted virtualization” to allow users to run ARM-based operating systems, including Windows, in a virtual machine. Parallels has released a Technical Preview Program for running Parallels Desktop 16 on M1-powered Macs.
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