Help required regarding ship modification.

[Vivicector]

There is a button "Frame config" or so, right in the upper middle of the shipyard screen. There you can reselect frame points. Just reduce something and add the cargo bay size.

[Marvin]

Only civilian ships can be modified. When in the shipyard, you can go into Frame Configuration to add or subtract from crew slots, equipment, weapons and/or CMs. From the main shipyard menu, you can shuffle around your engine type, wing system, fuel, shields and cargo bays by dragging and dropping your selection from the left-side list to the center ship. The smaller the ship, the fewer options (assembly points) are available.

[DaveK]

The Shipyard (and the Weapon Lab as well) can seem complicated when you start, but a bit of playing around helps. Have you looked in the EM Hints&Tips Guide - I think that there are some walk throughs.