The virtualization features are at the hardware level, macOS and Parallels just configure that to run. Really it's just "I'm running a Windows VM and it's translating x86 apps to run on the ARM CPU".

Works great, particularly for 32 bit x86 apps it's a lot faster than running Crossover.

Exactly. ARM Windows has a feature like Rosetta which allows you to run x86 binaries on ARM (32 Bit and 64 Bit). This is mandatory because almost no one makes software for ARM Windows.

Nowadays it‘s pretty good. I was surprised how good it is, because I remembered it from the early Windows 10 days when the performance was atrocious.

That’s exactly what some people do. And it’s even possible to run older games that way. The x86-on-ARM Windows thingy is no Rosetta, but it’s pretty usable.