How does angle of incidence affect an aircraft's stability?
The angle of incidence is the angle between the wing chord and longitudinal axis of the aircraft as depicted here. From years of building model aircraft and flying aircraft I can explain one way that it affects the aircraft, and that is by reducing drag caused by the fuselage. A given wing requires a certain angle of attack (pitch up attitude) in order to fly at a given weight and speed. If the angle of incidence is 0 degrees, then that would require a nose high attitude and expose more of the underside of the fuselage to the relative wind. However, having an appropriate angle of incidence allows the fuselage to have a more horizontal orientation (and better visibility for the pilot from the cockpit) than if the wing was mounted exactly parallel to the longitudinal axis of the fuselage. 

So how does it affect an aircraft's stability? It affects an aircraft's stability by reducing its drag at certain airspeeds.