Contrary to blocking, which usually leaves the defender with the inability to move while guarding (block stun), reducing shield ability (whether by stamina or otherwise) and/or chip damage. Parries are a precise guard mechanic where the incoming attack is negated completely with much higher frame advantage to perform other actions but tends to be vulnerable to throws. It was popularized by the Street Fighter III line of games.
This differs from a riposte or counter as parries usually don't interrupt the opponent. Parrying is quite popular in many 2D fighting games, but it is also a skill of many melee classes in various RPGs and MMOs.
Street Fighter III
In Street Fighter III: New Generation, a parry can be done in the air or on the ground by timing a forward or down input in a small frame window to negate a single hit from normal, special and super attacks.
It is possible to follow a successful parry with another parry to avoid being hit by quick follow-up attacks or alternatively guard the rest of the assault.
While a strong defensive tool, which could negate predictable projectiles and make lower tier characters more effective. It has no effect on grabs.
In Street Fighter III: Third Strike, "guard parrying" was introduced which allowed one to parry out of a blocking animation by moving the controller towards during a block stun. This is also known as a "red parry" because the character flashes red when the technique is performed.
In Japan, parrying is known as "blocking" and what we call "blocking" is known as "guard" or "guarding".
SNK's Garou: Mark of the Wolves (1999) utilized a very similar system to parrying named "Just Defend".
2001's Super Smash Bros. Melee featured a Perfect Guard mechanic which greatly reduces block stun and has the quirk of reflecting projectiles back to the sender.
Ninja Battle Heroes had the guard act as a Perfect Guard (極みガード) if an attack hit the player within ten frames of the guard starting. This could be guard cancelled into a powerful melee attack or fullscreen counter attack with projectiles.
The Mysterious Murasame Castle was released in 1986 and allowed the player to parry some projectiles using the melee button.