This is an issue on the host's computer (the person attempting to host a game). Below are the things that can cause it.
AMD: Something is wrong with the graphics drivers
Update the host computer's drivers directly from AMD's site, avoiding any automatic updates or Device Manager. You should get the latest Recommended (WHQL) drivers.
AMD: Use H.265
In case the host and client support H.265, the people joining should try turning on H.265 in Parsec's settings before joining.
HDR is active
Parsec doesn't support HDR. If the host computer has it turned on, turn it off by going to the Display Settings > Windows HD Color > Play HDR games and apps.
The resolution is too high
If the host computer's resolution is higher than its graphics card can encode, then the resolution needs to be lowered. AMD's encoder is especially known for this.
The resolution is changed through Windows' display settings if friends are joining. You should try something like 1280x720, and increase it from there to see what works.
If you're joining yourself, you'll also need to be aware of Parsec's settings > Host > Resolution, which will automatically switch the display to that resolution when joining. Setting a lower resolution through just Parsec may not fix the error, so in that case change it through Windows and set Parsec to "Keep host resolution".