@sda71: Congratulations on your engagement! You are about to embark on a great many new social experiences; and start accumulating a great deal of information that many people will mistakenly refer to as “wedding etiquette”. In fact, there is no such thing as “wedding etiquette”; just “etiquette”, which applies to social occasions in general and formal occasions in particular. Although nowadays a lot of people don’t encounter formalities, except in the context of weddings, I find it can help a great deal to consider your adventures in the more general context.
In this case, of your engagement party, you and your fiance are what is called “guests of honour”. Your fiance’s parents (and, possibly your mum and step-dad) are the “hosts”. Hosts are the people who are responsible for arranging the guestlist, the location, the menu, the decorations, and all other aspects of caring for and entertaining their guests. They also “pay”, of course, but in polite society one tries not to focus on money, for fear of seeming materialistic and mercenary. What makes the host, the host, is the fact that he or she decided to hold the party and so doing took onthe responsibilities — and the right to make the decisions.
Guests — whether “of honour” or just ordinary guests — don’t have a say in the arrangements for a party, other than to either accept with pleasure, or regret to decline, the hosts’ invitation. They have the right to be treated considerately and fed and entertained, and with that they take on the responsibility to support their hosts’ plans as much as possible and be as socially pleasant as possible. So as far as this engagement party goes, your job is to smile and chat while your proud future in-laws show you off to their friends.
If you want to have more control, you may certainly give a party yourselves. You cannot give it in your own honour, but you can invite people and feed and entertain them, and use the occasion to announce your engagement to them. You must of course do this on another date than the one your future in-laws have chosen so as not to interfere with their prior plans. Similarly, if your mum wants to give a party in your honour where she makes all the decisions and gets to show your fiance off to all of her friends, she may do so.
Guests who come to any engagement party must be well cared for at the party, so that they don’t need to be compensated for their time with the promise of yet another party. The notion that they are automatically entitled to yet another invitation just because they accepted the first, is a recent innovation of wedding magazines and the wedding industry (who have everything to gain by inflating the scale of wedding expenditures). The notion seems to presume that the first party is some sort of imposition, possibly because there will be burdensome gift-giving involved. But engagement parties are not properly gift-giving occasions, nor should anyone EVER give a gift if they find doing so burdensome, and anyway good etiquette would flinch at the materialistic notion that people give gifts as a way of buying their way into a hostess’s good graces (Just in case, though, best form is to not even mention “engagement” in the invitation and only announce the engagement at the party itself, so that there can be no suggestion of gifts being solicited.) As for the party’s being an imposition — it is a party for heaven’s sake, not an invitation to help clean the garage! Food, drink, dancing, music — if things like that are an imposition, folk should just decline all invitations: they wouldn’t want to go to a wedding anyway!
Finally, if people do choose to take offence at being invited to “only” one fancy party, they can be as offended as they like — with your future in-laws who invited them. No-one else can put an obligation on you by the choices that they make.