cgutjahr has it pretty much covered.
Like he said: if you want to put your A1200 to the limit, you're gonna need serious bucks. The 'heaviest' upgrades will need you to put the A1200 in a tower. It gives you the most powerfull Amiga you can get, but in most cases it will not be worth the money.
I am more a 'middle-of-the-road' kind of guy on this: I like to have an expanded A1200, but there are limits to the amount of money I am willing to invest. Also, I prefer to keep my A1200 in its original housing.
So, upgrading your A1200 is quite simple:
1) Buy a turboboard with at least 16 MB ram. Blizzards are good units, but rather expensive. A 68030/50 card will give you a big boost in performance, but 68060 cards are _much_ faster. They are hideously expensive, though.... Imo, you should stay away from 68040 based cards if you keep your A1200 in its standard housing. They run very hot, while not giving you the performance of a 68060.
2) Internal scandoubler/flickerfixer. Enables you to use a standard (S)VGA-tube and gives you a much improved quality: interlaced modes are usable!
3) SCSI-card. The Blizzard SCSI-kit is very good and it gives you the chance of using a complete SCSI-tower with all kinds of devices. This setup is easy to maintain, fast & reliable.
4) A reasonably sized 2.5" harddisk. If you use SCSI, you won't need a new (buffered) IDE-interface. The standard IDE-interface of the A1200 is relatively slow, but will do for most stuff. I get around 2 MB/s with a 4 GB drive. Suits me fine.
5) Use the PCMCIA-slot for a networkcard and hook it up to your LAN or your broadband-internetconnection.
6) A standard A500 powersupply, which is more powerfull compared to the A1200 one, will fit the bill very nice for all of the above.
Upgrading to OS3.9 will give you a much improved userinterface without the hassle of having to install all kinds of utils at once.
With this, you will have a much improved A1200. It will cost you serious money though, even if you don't go all the way... Most software running on a standard A1200 will run on the above system without many problems. Most of it will even run better, because of the improved performance.
I am at least very happy with my current config: reliable, reasonably fast and easy to maintain.