I need more iPhone storage.

I'm afraid the option to get more iCloud storage won't help you. Even though you have plenty of iCloud storage available, some files get saved directly onto your iPhones internal storage (which can't be upgraded). You only have 32 GB and 31.7 GB of that is taken. For example, Apps and local stored music will always be saved onto the internal devices storage, there is no way to expand that.

No. You can't extend iPhone's internal storage.