Do I need to stay defensive to make these actually work? I thought I understood them, but then I read Improved Parry/Reflect and Supreme Parry/Reflect.

Can anyone give me some Insight/Clarification?

Reflect and Parry are both out of turn incidentals. You can do whatever action you want on your action, and then if someone attacks you, you can activate the appropriate talent to voluntarily take 3 Strain in exchange for reducing the damage by an amount depending on how many ranks you have (ranks + 2).

If you have Improved Reflect/Parry, then if that someone who attacked you rolled either Despair or 3 Threat, then you can use that Despair or 3 Threat to retaliate. This doesn't require a check by you to do, it happens automatically if you want it to and if they have the Despair or 3 Threat. The details of the retaliation depend on whether it's Improved Reflect or Improved Parry, and are detailed in the talents.

If you have Supreme Reflect/Parry, then if you did not make a combat check on the previous round, then it only takes 1 voluntary Strain to activate Reflect or Parry.

If you have Improved Reflect/Parry, then if that someone who attacked you rolled either Despair or 3 Threat, then you can use that Despair or 3 Threat to retaliate. This doesn't require a check by you to do, it happens automatically if you want it to and if they have the Despair or 3 Threat. The details of the retaliation depend on whether it's Improved Reflect or Improved Parry, and are detailed in the talents.

This is where defensive talents and force powers like sense help as the increase or upgrade incoming attacks giving you a better chance of getting to turn their attack back on your attacker.

Yup exactly how it is. I housed ruled for my players two threat or 1 despair activate the return attack. Also call improved parry Riposte and call reflect deflect instead and improved reflect just reflect. Just personal preference