You are right, the sequence $a_0=1,a_1=1.4,a_2=1.41,a_3=1.414,...$ does increase to $\sqrt2$. The $n$-th term of the sequence, specifically, is $\sqrt2$ rounded down to $n$ decimal places. Note that, to round down, we use the floor function:
$$\lfloor 1.9\rfloor=1.$$
Also note that if we multiply $\sqrt2$ by $10^n$ and round down we get an integer with $n$ digits which is less than $10^n\sqrt2$. Now, all we do is multiply our remaining integer by $10^{-n}$ to put the decimal point back were it's supposed to be. In symbols,
$$a_n=10^{-n}\lfloor10^n\sqrt2\rfloor.$$
Note that for all $n$, $$1\le a_n<\sqrt2$$
and $a_n\le a_{n+1}$, so $\lim_{n\to\infty}a_n=\sqrt{2}$.
Yes, there are more efficient and correct methods for the calculation of square roots, but this is exactly what was asked for: an increasing rational sequence converging to $\sqrt2$.