Consider log data from servers, Amazon must have a huge amount of data. The log data is generally stored as it is received, that is, sorted according to time. Thus if you want it sorted by product, you would need to sort the whole data set.
Another issue is that many times the data needs to be sorted according to the processing requirement, which might not be known beforehand.
For example: Though not a terabyte, I recently sorted around 24 GB Twitter follower network data using merge sort. The implementation that I used was by Prof Dan Lemire.
http://www.daniel-lemire.com/blog/archives/2010/04/06/external-memory-sorting-in-java-the-first-release/
The data was sorted according to userids and each line contained userid followed by userid of person who is following him. However in my case I wanted data about who follows whom. Thus I had to sort it again by second userid in each line.
However for sorting 1 TB I would use map-reduce using Hadoop.
Sort is the default step after the map function. Thus I would choose the map function to be identity and NONE as reduce function and setup streaming jobs.
Hadoop uses HDFS which stores data in huge blocks of 64 MB (this value can be changed). By default it runs single map per block. After the map function is run the output from map is sorted, I guess by an algorithm similar to merge sort.
Here is the link to the identity mapper:
http://hadoop.apache.org/common/docs/r0.16.4/api/org/apache/hadoop/mapred/lib/IdentityMapper.html
If you want to sort by some element in that data then I would make that element a key in XXX and the line as value as output of the map.