Monterey runs on both Intel and Apple Silicon Macs. I have it on both. I only run Parallels Desktop 18 Pro on an Intel iMac though with two much older macOS guests. Your Apple M1 iMac may not have enough RAM to run macOS Monterey and support a Parallel's Monterey guest. My Core i7 2020 iMac assigns 6 CPU threads, 16 GB RAM, and 1 GB VRAM to each guest because the iMac has 40GB RAM.
How to download macOS - Apple Support
When you create a new Parallels 18 guest, just feed it the full Monterey installer app as the source.