That's my take as well. The ability is divided in two parts.
The first triggers when subject to a melee attack, the Parry. This counts as an AoO for all intents, and as such limited by your available AoO.
The riposte is then a second effect triggered by a successful parry. Unfortunately the riposte is a once a round thing since it's an immediate action and consumes your swift action for the round.
So with combat reflexes and a 16 Dex you could parry up to 4 times in a round, very useful I say. And on one of these, if successful you could riposte (using up your swift action for the round to make this immediate action)