Per Parallels Networking FAQ, there are five ways to network a VM:

1. Default Bridging
2. Bridged to Built-in Ethernet
3. Bridged to Airport
4. Host-Only Network
5. Host-Only with Internet Sharing

Which one should you choose? Parallels FAQ has a few recommendations but leaves the decision to the user.
In our book, 9 times out of 10, everyone should use Host-Only with Internet Sharing.
Why? Here are our reasons:

• As the name implies, the Host-only network is limited to the computer and the VM, not to the outside world. When hosting XP, this adds an extra layer of security.
  
  
• If you're in a hotel room, a Wi-Fi hotspot, or a flight where charges are per IP address used, no need to worry about incurring extra charges
  
  
• When at work, where IP addresses are rigorously managed by IT, the same IT that is already giving you trouble for running a Mac, running a host-only network allows you to run multiple VMs (XP, Linux, FreeBSD) without incurring IT's wrath. Be warned though, in an Fortune 500 I worked at, IT has been known to run network sniffers to even inspect traffic at the packet level.
  
  
• You can share Bluetooth Modem or VPN connections from your Mac to a VM
  
  
• When moving to different networking environments, your VM's configuration need not be disturbed. The host-only network's address space will remain the same even if you move from an Airport environment at home to a wired Ethernet setup at work. The only thing you'll need to tweak is your Internet Sharing. Just change it to which network adapter you are "Sharing your connection from."
  
  
• You can suspend your VM without fear of loosing your network connection between sessions.

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