Embryologically, they associate with the ultimobranchial body, which itself is a ventral derivative of the fourth (or fifth) pharyngeal pouch. Parafollicular cells themselves are derived from Neural Crest cells. They are not numerous in the thyroid, and are typically situated basally in the epithelium, without direct contact with the follicular lumen. They are always situated within the basement membrane which surrounds the entire follicle.
When parafollicular cells become cancerous, they lead to medullary carcinoma of the thyroid.