The main reason that applications ask this question is to give admission officials a bit more insight into where you’re coming from. In other words, when they evaluate your grades, your writing, and, especially, your SAT or ACT scores, it’s helpful to know about the intellectual climate in which you (presumably) live. Admission officials may have somewhat different expectations of the son or daughter of a factory worker who did not attend college than they would of the child of a surgeon with an Ivy League degree. Perhaps these expectations aren't entirely accurate--or fair--but, nonetheless, the admission folks view your parents' background as part of your "big picture."
When it comes to admission decisions, there are some advantages to having parents who attended snazzy colleges (e.g., you may hold "legacy" status at one or more of your target colleges; also, admission officials know you probably hail from a home where education is valued and you’ve most likely been exposed to literature, arts, etc. in a way that will help ease your adjustment to a demanding college). But there are also some disadvantages (e.g., more forgiveness when it comes to marginal grades, writing, or test scores goes to those whose parents may not have offered them the same academic opportunities).
If your parents did not attend college at all, then you might get a "hook" in the admissions process for being "first generation." In your case, however, the fact that your parents went to college but not to any "name" school will probably end up being neither a plus nor a minus in your admission process.
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