Parallels allows you to run Windows within what's called a "virtual machine". This basically emulates a PC and uses your system's hardware for support. The nice thing about Parallels (and VMware Fusion, another product that does the same thing) is that you can run the Windows applications transparently without having to reboot your Mac to Windows. Also, your Windows installation would be in a type of image file within your Mac OS X hard drive.
There is somewhat of a performance hit with this type of software, but current Intel Macs have the technology from Intel that allows what's called "hardware virtualization" which tries to bring the emulated machine close to native speeds. The emulated environment definitely runs faster with this support than on hardware that doesn't support "hardware virtualization".
Boot Camp allows you to run Windows natively without any emulation whatsoever, so you get the full potential of the Intel Mac since it's no different than what it would be like running Windows on a stock PC. However, it does require you to reboot your Mac from Mac OS X to Windows in order to use Windows applications. But performance is better than that of running Windows within Parallels or Fusion.
One good thing is that I believe Parallels and VMware Fusion do allow you to use your Windows installation through Boot Camp so that you don't have to create a VM image which would take up space on your Mac OS X hard drive. This way you get the best of both worlds, more or less.
As for the ISO image, Disk Utility has the ability to burn ISO images to disc. CD ISO images will burn to CDs, and DVD ISO images will burn to DVDs....I don't recommend mixing them up as consistency is key.
Now, I'm a little confused about the .exe thing. Did they provide you the ISO image as an .exe file? I imagine it's probably a self-extracting file that would extract in Windows once double clicked, revealing an ISO image. I could be wrong of course since I can't see what's in front of you. Maybe if you would provide a screenshot of the file on your desktop to see what it looks like? Command-Shift-3 will take a full screenshot.
