Is Windows and Parallels sandboxes when installed or can Windows and Microsoft see what’s going on on my Mac when Parallels is running?
You get to choose. Besides folder sharing, Windows can see connected drives, network adapters etc. If you want to be sure you’ve locked down Windows, check the “Isolate…” checkbox and it’ll disable all those features.
Even if isolate is unchecked and folders are shared, Windows still doesn’t have low level/general OS access or the ability to see outside folders shared with it. Caveats apply for malware using virtualization escape tricks, etc.