I'm a VMware Fusion user and am trying out Parallels since VMware has some quirks that are annoying on Mountain Lion on a retina MacBook Pro (16 GB RAM).
I'm wondering about the baffling Parallels recommendation (when configuring a VM) that there is a maximum cap of 4 GB of RAM for a VM with Parallels (indeed, it recommends 1.5 GB for Windows 8). (See this forum thread.) Granting anything more would, in fact, slow down both the host and client, but I have no problem assigning 8 GB of RAM to a VM in Fusion; before really committing to Parallels, I'd like to know the rationale behind such a recommendation (and no, the Parallels forums don't shine satisfactory light on the subject, at least from what I've been able to dig up).
If you're running in an x64 environment for both host and client then there shouldn't be any acceptable reason for needing to cap the RAM. Apparently, Parallels support states "because Windows is working in a virtual environment, that it only needs max 1-3 GB." My development machine and environment is not a toy, so such an answer seems borderline patronizing and makes me think they're simply covering up for a significant Parallels limitation.
UPDATE October 26, 2012 —
Well, look at that. Latest update released today (October 26, 2012) now allows "assigning up to 16 GB of memory to a single virtual machine."
See http://kb.parallels.com/115024
You can now assign up to 16 GB of memory (RAM) to a single virtual machine.
Support for Windows Server 2012.
New, more intuitive design to optimize Windows for working on Retina displays.
Easily check the reclaiming disk space progress with a new progress bar.
However, I've installed and checked, and it still says "For best performance, set available memory to be within the recommended range of 512 MB to 4096 MB. Allocating memory outside of this range can slow down both the guest OS and your Mac."
The mystery continues…
Best Answer
It might be that the majority of the OSes that people virtualise (or at least those doing so with Parallels) can only use 4 GB of RAM anyway because they are 32-bit OSes, so it would not be necessary to have more than that. You shouldn't need more than 4 GB of RAM in the virtual machine anyway, so you partly answered your question. The majority of laptops these days don't have a massive 16 GB of RAM like you do; Parallels is only looking at the market side of things there.
If you really need more, why don't you just Boot Camp (you can Boot Camp with Linux as well); that way, you will use all of your computer's power if you need it. With your SSD, it won't take too long to restart.