When the server was released they probably didn't have certified drives larger than 500GB to offer; 3 bays x 500GB = 1.5TB.
You can use larger drives, but as Ramhound points out, you'll want to ensure the BIOS and HDD controller can handle drives >2TB before buying a bunch of drives with that capacity. :)
There's no such thing as a 3.5" DVD drive, as a DVD couldn't physically fit in that space (DVD = 12CM = 4.7").