Parallels Help moving ISO image
Solution 1:
The iso is used during the installation process. It does not need to remain connected once the installation is complete, however if you have not installed all packages from the installation that you wish then it is useful to keep the iso around to allow for repairs etc, although it is not required to be connected.
You can then move it to another folder, burn it to dvd or whatever action you want and reaccess it at a later date.
You could even reaccess it from the new location as an image once you have moved it.
Solution 2:
The iso is no longer necessary. In the bottom of the virtual-machine-window there's a icon that looks like a CD if you click it you can de-select the .iso (by either choosing disconnect or use phyical drive)