You can install at least a 2 TB drive. Do not use any so-called "green" or energy saver drives. They do not behave well in Macs. Also, avoid models that have their own built-in firmware for parking the drive when it falls or is shocked. Macs already have this built-in.
Re-installing OS X isn't that difficult. However, the method depends on whether your model supports Network Recovery: Computers that can be upgraded to use OS X Internet Recovery.
It's also simple enough to buy an external enclosure in which to place your computer's old drive. Install the new drive and boot the computer from the external drive's Recovery HD. You can use Disk Utility to partition and format the new drive, then clone your old drive to the new drive.
Drive Partition and Format
1. Restart the computer and after the chime press and hold down the COMMAND and R keys until the menu screen appears. Select Disk Utility from the menu and click on the Continue button.
2. After Disk Utility loads select your new hard drive (this is the out-dented entry with the mfgr.'s ID and size) from the left side list. Note the SMART status of the drive in Disk Utility's status area. If it does not say "Verified" then the drive is failing or has failed and will need replacing. SMART info will not be reported on external drives. Otherwise, click on the Partition tab in the Disk Utility main window.
3. Under the Volume Scheme heading set the number of partitions from the drop down menu to one. Click on the Options button, set the partition scheme to GUID then click on the OK button. Set the format type to Mac OS Extended (Journaled.) Click on the Apply button and wait until the process has completed.
4. Select the volume you just created (this is the sub-entry under the drive entry) from the left side list. Click on the Erase tab in the DU main window.
5. Set the format type to Mac OS Extended (Journaled.) Click on the Security button, check the button for Zero Data and click on OK to return to the Erase window.
6. Click on the Erase button. The format process can take up to several hours depending upon the drive size.
Clone Yosemite, Mavericks, Lion/Mountain Lion using Restore Option of Disk Utility
Boot to the Recovery HD:
Restart the computer and after the chime press and hold down the COMMAND and R keys until the menu screen appears. Alternatively, restart the computer and after the chime press and hold down the OPTION key until the boot manager screen appears. Select the Recovery HD and click on the downward pointing arrow button.
1. Select Disk Utility from the main menu then press the Continue
button.
2. Select the destination volume from the left side list.
3. Click on the Restore tab in the DU main window.
4. Select the destination volume from the left side list and drag it
to the Destination entry field.
5. Select the source volume from the left side list and drag it to
the Source entry field.
6. Double-check you got it right, then click on the Restore button.
Source means the external old drive. Destination means the new internal drive.