Store on the Web
Cloud storage services offer tons of free space online you can use instead of your hard drive. Microsoft's SkyDrive, for example, gives you 7GB or 25GB free (depending on when you signed up for the service), while Box, Google Drive, and SugarSync Free offer 5GB. Dropbox Basic starts at 2GB for free.
If you get in on promotions that these services sometimes run, you could score even more space--Box, for example, has offered 50GB free in the past. To really save space, though, the service you use will have to let you either simply upload your files without having to sync them, as Box does, or exclude some folders from syncing (otherwise, you'll still have those folders and files stored on your computer). SkyDrive and SugarSync don't seem to have this selective syncing feature, but Dropbox and Google Drive both do.
To stop syncing all folders to Google Drive, right-click on the Google Drive Tool, then go to Preferences. Check the box for Only sync some folders to this computer. For Dropbox, go to the Dropbox preferences, then the Advanced tab, and click the Selective Sync button. This is a great way to keep large folders like videos and photos in your online storage space and remove them from your computer's hard drive. Other services you can use to save space include Amazon Cloud Drive (ideal for storing your music), Picasa or Flickr for your photos, and, of course, YouTube for videos.
Run Software in Your Browser
Finally, Web-based software can often rival desktop software in functionality--and such programs are often free. Instead of installing an office suite on your computer, you can use Google Docs or run Microsoft Office Web apps from within SkyDrive online.
Pixlr Editor can substitute for the space-hungry Photoshop for photo editing, PDFescape does the job of Adobe Acrobat, Screenr is an online screen recorder that can replace Camtasia, and, instead of Quicken for your personal finances, you could try Mint or Adaptu. So don't feel cramped if you have a small hard drive. Use some of these strategies and you may find your hard drive to be bigger than you thought.