Domain parking is basically setting a pointer for domainA.com to point to the root path of domainB.com in the web server, when someone enter domainA.com in their browser, web server will be picking up the request and automatically pulls out the content from root path of domainB.com. That means users will be seeing identical set of content when entering either domainA.com or domainB.com in the web browser.
Why use parked domain ?
The initial idea of parking a domain arises from protecting domain names in different extensions, domain owners wanted a simple solution to direct the traffic of domain name in different extensions back to the main domain name. For example, yahoo.com is a popular domain name, but yahoo.org, yahoo.net is hardly used but yahoo obviously do not want other people to get hold of these domain names, and these domain names will of course be registered by yahoo. When people got adventurous and started entering yahoo.org or yahoo.net in their browser, they will get web page not found error if yahoo have not setup any content on these domains, this is in deed not a good way of treating customers, but maintaining different sets of yahoo is not a good solution too. Yahoo would definitely love to have a simple solution to direct these people to the main yahoo.com site. A simple and easy solution is by parking the domain yahoo.org and yahoo.net on to yahoo.com. After setting this up in the web server, people who enter yahoo.org or yahoo.net in web browser will be directed automatically by the web server to the main yahoo.com site.
Parked domain and search engines
Parking domain is a handy solution, but if you are concern about Search engines traffic, you should be aware that search engines do not like to see same piece of content being serve more than one time, with a park domain setup, you are serving identical set of website and web pages, search engines will consider this content as duplicate content and this is going to affect your search engine rankings, you should have a good robots.txt instruction to block search engine crawlers on parked domains, and only allow indexing on the main domain. This will prevent the duplicate content issue in search engines and yet still able to use the parked domain feature.
Is parked domain similar to 301 or 302 redirect ?
Parking domain is not the same as the 301 or 302 redirection rule, redirection rule is an external instruction to web server but parked domain is setup as a virtual domain configuration, parked domain returns a 200 status code in web server log, which means web server treats the same way for a parked domain and a master domain for a hosting account.