Can I my 500GB external drive to upgrade to High Sierra?

Yes, you can do that. But you'll need a clean drive or volume.

Or you could clone your internal drive to the external and then install HS on the internal and copy back selected files, leaving a good amount of free space. It will run faster from the internal drive.

HS = Mac OS High Sierra.

I'd actually suggest that you offload/delete/copy some space hogging files from your internal drive to your external drive. You should always maintain an absolute minimum of 10 - 15 GB of empty space so your hard drive can work efficiently. So, in order to download/install a new OS, you should have about 20 GB of empty space.

Norman Kline wrote:

My MBP does not have enough disk space to upgrade to High Sierra from Sierra (10.12.6). Can I use my external drive to download High Sierra and then use it in the MBP?

Do you say what MacBook Pro/ year you are using?

2015 or earlier you can install a SSD with more capacity SSDs (Solid-State Drives) Designed for the MacBook Pro