The most obvious thing is that you should never even consider using win95. Try win98se if at all possible. When you try to install you must first format the virtual drive using the dos utility. Back in those days it wasn't done for you - same for win98. Somehwere in the begining of the install it will check disks and probably fail. Exit to dos and enter something like 'format c:', then restart the install by rebooting if it doesn't automatically (probably not). You should also (in vm setup) force it to use a virtual disk <2gb since that was the max back then and windoze will puke if it sees more.
True, but that is still no reason to use it (even tho the OP didn't mention it). Years of experience by Win4Lin users proved time and again that switching from any Win95 (or WinME) to Win98se improved reliability drastically when running under Linux. Not exactly the same environment as Parallels but a good test platform.
You know, there could be many reasons to run Windows 95, even today. If you can't come up with any, it's not the OP's problem. Again, please stop the trolling, it's tiresome.
install windows 95 on parallels Please explain to me how to install windows 95 on parallels. Thanks, Lee