Read this getting started guide:
tl;dr JTAG is a bit better but can only be done with dashboards 7371 or lower. Your only other option is RGH.
Personally I wouldn't bother spending the extra money on a JTAG unit when RGH does basically the same thing.
RGH 3 is better for slims, while it's a bit flaky for fat models - but you can opt to use RGH 1.2 instead.
Games cannot be played as ISO, but instead either GOD (game-on-demand) or the "game folder" format.
Converting ISOs to the GOD format is best if you don't mind the extra work / wait, don't want to mod games, and want to use the stock dashboard.
Otherwise if you plan on modding games, you'll want to use the "game folder" style and a custom dashboard. Aurora is the most popular with FreeStyleDash being runner-up.
They work either way internally or externally, but updates and DLC cannot be used externally if I remember correctly.
Once you have JTAG or RGH, hacked drives for internal use aren't necessary anymore. If you try formatting the hard drive it'll just prompt for the console serial number and let you use it.
I definitely don't recommend Console Warehouse due to horror stories (of course from Reddit), but you can try your luck with them if you really can't get someone to install it for you or buy a pre-modded console.
