Parody is a satirical imitation of an artistic work which is used for comic effect. When the literature or musical piece that is being parodied is serious, the parody is more amusing.
There are many examples of parody throughout Monty Python and the Holy Grail. In fact, the whole movie itself is a parody.
Overall, the movie Monty Python and the Holy Grail parodies King Arthur and his knights' quest to find the Holy Grail. Any aspect of society during that time in history is subject to parody, but the movie centers on the knights, morality, chivalry, and the wheel of fortune.
One of the beliefs in medieval times was a belief that God could change your life at any time. This was called the "wheel of fortune" and in the movie, the wheel was sometimes favorable and sometimes it was not.
An example comes from the Bridge of Death scene.
Monty Python is considered both parody and satire.
A parody imitates another work to make fun of it or to ridicule it. Synonyms include caricature, travesty, skit, satire, farce, and spoof.
A satire attempts to make a point when it imitates another work.
Thus, while both parody and satire imitate and/or make fun or another work, like a play, piece of literature, movie, or song, there are some differences. Both of them are humorous; but, the main difference is the intent of the imitation. A parody is done for fun and entertainment whereas a satire may be entertaining, but makes a point.