How to switch HDD from variable to fixed size

Hi @Robert Swanson, Parallels Desktop virtual machine will be created with an expanding disk by default, not as a plain disk. If the plain disk is created then only the allocated space will be occupied on the Mac else the space used will be occupied. As your virtual hard disk is created as expanding hard disk and the space used is less than 256 GB reducing the limit will not result in any changes.
Expanding disk is a file that stores an image of an expanding virtual disk and resides on your host OS.
While a plain virtual hard disk image file has a fixed size that is determined when the disk is created, an expanding virtual hard disk image file is small initially, its size grows as you add applications and data to the virtual hard disk in guest OS.
It is possible. You need to remove unnecessary data or applications inside VM. Then do Reclaim disk using VM configuration windows General Tab. We do not recommend you to move the .pvm to an external hard drive, convert and move it back to the internal SSD.