How can increasing the wait states increases the speed of Processor?
The clock rate of the processor goes up.  The number of useful instructions it can execute might go up, down, or stay the same.  It depends on its memory hierarchy or whether and how often it needs to get data off the system bus.  The idea is it might need more wait states at high speed because it cannot guarantee getting the data it needs in time. 

So it is all about what you mean by "speed".