kevishnu, As the command output says, you can free up space by typing "sudo apt-get clean". This deletes files that have been downloaded and already installed, and so are no longer needed.
One way to free up space is by uninstalling software that you don't use; most distributions install a large number of software packages to try and cover everything that most users may want to do. You should only delete things if you know what they do or are sure that you won't use them - packages needed for bluetooth, for example, won't be needed if you never use bluetooth.
You can also try deleting files from the / partition. Linux and UNIX systems organise all your files, on all disks or partitions that you might have, into one big hierarchy (or "tree") structure. Type "mount" to see a list of all the various parts of the filesystem; you will see things like /proc, /dev and maybe /home or /var; each of these is a separate filesystem and so is not part of the root (/) filesystem; deleting files from any other directory will save space on /.
Another option is to update packages one at a time; try picking the first file from the list of proposed updates (which should appear just before the output you posted) and doing "sudo apt-get dist-upgrade package". This will perform fewer updates and should require less space; you can then run "sudo apt-get clean" to delete the newly downloaded packages after they are installed before continuing to the next package. You can't break your system this way; each package will also update any packages on which it depends.
Hope that helps,
–Robert J Lee