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Could anyone please explain what "transcoded" means. I thought a digitial file was a digital file. Thanks.
Digital is indeed digital, but not all digital footage is the same.
The HMC records / compresses the video in an AVCHD codec. This is (largely) unsuitable for serious editing because it takes a lot of CPU power to do it.
To make the footage easier to edit you might want to uncompress the AVCHD footage and re-compress it to another codec more suitable for editing. This is generally known as transcoding.
Transcoding can also be seen as taking footage from one resolution (i.e. 1080p) and resizing it to another one (i.e. 720p).
A 1TB drive does not really hold that much--If you're transcoding you willl likely have file sizes that take about 1GB per minute. 60 minutes would = 60GB's, or about 16 to 17 hours of transcoded footage (at least when using the Main Concept transcoder from Panasonic's site).