Mark!
I've had four or five PC's over the years, so I'm not a total idiot, but damned close. When you guys start talking about daisy chains, SATA's, RAID cards, etc., I get a little scared. (The only parts I'm really familiar with are perfused by blood vessels.)

You're not alone. I dare say the majority of the really good photographers I know out there don't know all that much about what they have under the hood. I had to explain over the phone to one of my buddies just a couple weeks ago what an NAS was....while he's enjoying an extra day of R&R after a ridiculously expensive destination wedding in the Caribbean!
[I'd love to trade places with that guy....haha!]
Strictly speaking, it doesn't matter. A 500gb external would work fine with a 1TB HD internal....though (in this scenario) you might be a little restricted in what you can do with that external (for obvious reasons that your external isn't as big as the internal).
Here's the skinny -- It use to be that base hard drive configurations were pretty skimpy. Nowadays, most base HDD set-ups are plenty big. Heck, my retired mother has been running along with her 2-year old iMac and its 160gb HDD just fine. In terms of size, that's more than enough to run your core components.
That's the reason why the conventional wisdom around here is "Don't buy the Mac hard drive upgrades!" Get the smallest HDD option they offer (since it will be more than enough core space!) then spend the difference on a 1TB+ external (or something similar), and you'll come out with more storage for less money!
Of course, if money is no object, then....sure.....get the 1TB upgrade option!!! LOL! 
I remember the first of the aluminum iMacs ran noticeably warmer than their white iMac counterparts. My iMac friends tell me Mac solved that problem, but I can't give specifics first hand. Perhaps someone like Maxxum can comment more directly???
RAM is all internal. If you bought your own RAM to swap, it would be an internal swap with what's already under the hood! Fortunately, Mac has made it easy to swap out, even for the novice. It might take some extra time if you've never done it before (mostly from nerves!). But for those of us that have done this 100's of times, I can do a memory swap in about the same time as it takes my OS to boot!

As for hard drives, any upgrades on the iMac would require either (a) swapping out the original (internal) one for a larger one OR (b) adding an external one via firewire or the like! Unlike the MacPro or any other tower for that matter, there are no extra bays for hard drives internally. Most people opt for (b) since it's easy to do and most want an external backup anyway! Now, If you are really anal about peripheral clutter (and I have a few friends that are), then that might be one reason to just get the big HDD upgrade in your iMac, even though you're paying a premium to Mac to get it. I know one designer that did something like that -- a big HDD in his iMac and he FTP's all of his files off-site for backup. That guy can't stand external HDD-type clutter, so it was worth it to him to just pay the extra for the upgrade.
Merry Christmas to you, Mark. Wish we had some of that Pennsylvania weather here in California. Today is so nice I could almost go kayaking without a wet suit! 





