This is an issue on the host's PC. Below are the things that can cause it.
This is the most common cause. Check the compatibility list and ensure yours is supported before trying anything else.
Intel HD Graphics Driver September 2019
An Intel Graphics driver released in September ending in .726X (for example 22.214.171.12462) has a bug preventing Parsec hosting from working. Please check device manager to see if you have this driver. If this driver is installed on your system, you will need to update your driver (directly from the Intel Support Site) or downgrade / rollback to a previous driver version.
Ensure your graphics card drivers are up to date.
This is a limitation of some AMD APUs. You can try lowering the resolution of the stream in your hosting settings to 1280x800 or lower (not through Parsec; do it directly through Windows' settings).
Disable/close NVIDIA Shadowplay, Xbox DVR / Game bar, VNC or other game streaming apps and, then see if that fixed it.
Cloud machines purchased on parsecgaming.com
If you updated the graphics driver incorrectly, you'll need to delete this machine and recreate a new machine to repair this problem. Check out this guide on updating the GPU drivers.
If it happens every time you make a new machine, or you never updated your graphics drivers in the machine, or you have some stuff on the machine you can't afford to lose, make a support ticket and we'll do our best to help (it may take 24 hours).
Cloud machines purchased from other providers
You're either attempting to use a instance type that doesn't include GPU/hardware encoder support, or your GPU drivers are not correctly installed.