Why do series combinations of Batteries not increase Capacity?
It does! The capacity of a battery is correctly measured in watt hours (or equivalently, joules), not amp hours. A rough approximation of a battery's capacity in watt hours is its rating in amp hours multiplied by its nominal voltage.

Putting two 1V 1AH batteries in series results in a 2V 1AH battery - which has twice the nominal capacity. If you were to use the battery as an input to a buck regulator (known as a BEC in RC hobbyist terminology), you'd be able to draw 1V with 2AH, before accounting for losses in the voltage regulator.