Virt-manager, the program you are configuring your virtual machines with, is in very rapid development and originally written to manage Xen doms. Xen is able to do both paravirtualization and full virtualization (though I do not know whether one Xen host can do both at the same time). If you are using virt-manager to manage a Xen host, the paravirtualization vs. full virtualization choice makes sense. More so because of the fact that you can use virt-manager to manage remote Xen hosts as wel as the local machine.
When using virt-manager to manage a KVM host though, the choice between the two virtualization options is much less useful: KVM only does full virtualization, with the possibility to paravirtualize some subsystems on some platforms. That is why you see the paravirtualization option grayed out.
Ubuntu doesn't handle being a Xen dom0 very well, if at all, because of the trouble upstream is having with merging the Xen code into the mainline kernel. There are very few distributions out there, with kernels that are newer than say, 2.6.18, that handle being a Xen dom0 at all right now.
To make a long story short: if you want pure paravirtualization, you must use Xen. But that also means either patching your kernel yourself, looking for third party packages and / or documentation to set up your current distribution or using an older kernel, as found in CentOS5, for example.
If you are satisfied with full virtualization and the virtio drivers (which are paravirtualized) for storage, networking, ballooning, etc. you can use KVM.
The theoretical speed difference will likely not be noticeable.
