Treasure parcels are shared among the whole group, not one per character.
- The entire party has a level 2, 4 and 5 magic item to share between themselves. This means in a group of four level 1 characters, only three magic items have dropped, and one person may not have their own magic item yet.
- You do not have 5 potions and 720 gold. You drop the potions instead of a portion of that gold.
This is the Treasure Parcel for Party Level 1, found on DMG page 126:
This has ten treasure parcels, and with a four-person party, you ignore parcel #3 (as you've discovered). Over the course of level 1, you should drop each of these once (except parcel #3).
Parcels 1 to 4 are magic items. Parcels 5 to 10 cover currency, potions and valuables. Each of those lists options of what to drop, and you only drop one of those options for each parcel. The first option is the pure gold option, whilst the other options involve substituting a portion of that gold for potions and/or valuables worth the same amount as that portion of gold.
So for parcel 5, your party would receive either 200gp, or two 100gp gems, or two potions of healing (worth 50gp each) + 100gp. They would not receive all of that. No matter what they get, though, parcel 5 gives them 200gp worth of stuff.
No matter what option you pick for each parcel, since they work on an equivalent-exchange basis, your party will end up with 720gp worth of stuff by the end of level 1 (on top of their magic items). This is the "Total Monetary Treasure" value referred to in the top right.
So at the end of the level, your party might have:
- 720gp (if you only ever dropped plain gold)
- 720gp worth of valuables and currency (if you dropped gold and valuables)
- Five potions of healing and 470gp (if you dropped as many potions as possible, and pure gold otherwise). Potions being worth 50gp each, this adds up to 720gp too.
- Or a bunch of gold, valuables, and potions, all adding up to 720gp, depending on what you chose for each individual treasure parcel.
... as well as the level 2, 4 and 5 magic items.