So while the Installer dmg was mounted as Hard drive 2, system was not told to boot from it. But, when I looked on the boot order, this Hard drive 2 (= the bootable dmg installer) was not there listed at all, just CD, Hard drive 1 and something else. I checked the list of disks in Hardware and there were TWO - main Hard drive 1 for the VM and Hard drive 2 which was the mounted installer dmg file. At that time the new VM could not find any bootable drive. Everything progressed well enough until first reboot.
Parallels told me that it needs to create bootable image out of the installer app and in few minutes there was yet another large dmg file on my desktop and installing started. I modified some parameters of the new VM - (to 4Gb) memory and graphic memory (512Mb) in customize - and started the installation process. Parallels found the Sierra installer app on its own on the desktop. I created new VM in Parallels, used the 'install from DVD or installer.' method. I downloaded the 10.12 installer ('Install macOS Sierra Public Beta 2.app') and moved to to my desktop (this is likely not necessary). I have today updated to the new release 11.2.1 of Parallels and created on it new Sierra Pubic 2 VM with only one minor problem in installation. Took about 20 minutes and you need about 16Gb for the VM and 12 Gb for the two installer files. Not sure if this is reported elsewhere, so here is my procedure.
