Yes you can upgrade to 1TB or even bigger. Last PS4 firmware update was in august, and it supports storage up to 4TB. You can also use bigger storage but it may result in error.
You can update 2.4-internal HDD or use something like Nyko data bank to use 3.5 inch drives. Also external hard drives is an option, but in order to use them you will need to install the software and games on it.
ps4 hard drives: