Yes, you can use external USB HDD or memory stick.
With WiiFlow you can also use the internal SD (which some other loaders cannot do)
I keep my current games on internal SD, very neat.
The USB holds the rest of my collection and is only plugged in occasionally.
As long as the USB was plugged in when you refreshed WiiFlow, it will show all games even if USB not plugged in. Very handy.
To get discs onto the SD/USB I use Wii homebrew utility CleanRip which runs on the Wii itself and takes ~30 minutes to rip a disc, see the ripping thread for more info.