Upgrading Windows 10 to the 2021H1 update with only 32GB of disk

First, your C: drive is too small and likely needs to be replaced to allow Windows 10 21H1 and then beyond. So the answer here is a larger C: Drive.

Second, try the following:

1. Move documents and email from your Users folder to your other drive.

2. Remove all the files you can in c:\users\you\appdata\local\temp ; c:\windows\temp ; and C:\Windows\SoftwareDistribution\Download

3. Now run Disk Cleanup again. This time, in the first Disk Cleanup screen, select Clean up System Files and let it run. Now select ALL items for cleanup including Prior Windows Installs (windows.old).

When done all the above try restarting and updating again.

Most likely you need a bigger drive.