From a cost perspective the answer is quite easy: get the 256GB internal SSD. This is more than you'll ever need for macOS and all your apps. You can put all your other files on an external SSD. A 2TB Samsung T7 will only cost you about $300. While not as fast as an internal SSD, these things are still really fast, and the difference will hardly be noticeable.
Personally, I'm not going that route though, because I'll also install Windows on it and I do like to keep most of my files on the internal drive. I'm getting the iMac with a 1TB SSD, so it's enough for nearly all my files (I still have an external SSD for a couple of films and TV series). Rationally, it's a bit of a waste of money, but I like to convenience.
Once you upgrade higher than 1TB though, prices skyrocket. 2TB is another $400, 4TB another $600, 8TB another $1200. For 99% of the users, that's just way too expensive for what is essentially just the convenience of having an SSD internally instead of externally. Don't forget an external drive also has benefits. You might get an ARM iMac in a few years. If you use an external SSD, you can just take it to the new iMac. If you spent all your money on an internal SSD, you'll lose all of that when you sell your iMac.