This is post contains some technical info, but it's presented in laymen's term, and the real star of this post is the shockwave animation towards the end. Please view the animation; it's worth it.

We all want our harddrives to get bigger and bigger, but there are some physical hard limits that prevent an infinite growth. First of all, there's a standard size for harddrives. They have to be this size to fit into your computer case. Since the size of the harddrive is set, that means there's a limit on the number of atoms you can store in the harddrive, and a limit on the number of atoms means a limit on how much data you could store.

Anyway, harddrive technology is not so miniturized yet that we have to worry about individual atoms, but they are small enough that magnetic interference is becoming a problem. Harddrives, in case you didn't know, store information by having lots of little magnetic cells either have north and south oriented a certain way, or having it oriented in the reverse way to represent 1 and 0 respectively. Your harddrive contains a few hundred billion of these cells, each one storing one bit of data. As these cells get bunched closer and closer together, they start magnetically interfering with each other, and the cells start flipping around and data is lost.

Hitachi has found a way to solve this problem using what it calls perpendical recording. Basically, they've oriented the cells in a different angle to be able to pack them more closely together while avoiding the interferance problem. This is a radical change in harddrive design, meaning new factories will probably have to be built to construct harddrives using this new technology. Hitachi predicts that this will probably yield an increase in the limit of harddrives size by a factor of 10.

Here's the flash animation that explains it all.