Your data stream will be sent in packets of a set length of bits. You will be told if the stream is using odd or even parity.
This is a way of checking to see if the computer has recieved the packet correctly.
It works like this: (Using ODD parity as an example in an 8 bit packet and a 1 bit parity bit)
The 8 bits are used for data transer, and the other bit is used for parity checking. But before the computer can interpret the data, it needs to make sure that the right data has been sent. If using ODD Parity, then EVERY packet sent must have an ODD number of bits (an odd number of 1's I mean when I say that). So when the packet is recieved, the number of bits are added up to check that there is an odd number of bits). If there isnt an odd number of bits then the packet is returned/rejected whatever you want to call that.
HOW PARITY WORKS:
In odd parity - every packet sent needs to have an odd number of bits. The parity bit is the one that allows for this. If the packet being sent (the 8-bit part of the packet) has an EVEN number of bits, then the parity bit is made 1 to make the total number of bits ODD. If the packet being sent already has an odd number of bits however, the parity bit is made 0, as making it 1 would make there an even number of bits, and thus the packet would be 'bad' packet...
Examples: (8 bits, space, then parity bit) 11100111 1 - Parity bit is 1 here, as there are an even number of 1's in the 8-bit part, and the total number of 1's needs to be ODD for odd parity.
11100110 0 - Parity bit is 0, as there are already an odd number of bits.
HTH.