How can an increased blood supply help improve physical fitness?

Nourishment. Adequate blood supply is critical for the maintenance of our body's cells, tissues, organs, and ultimately the function of our systems. A person with increased supply of nutrients and oxygen is able to function well under physical stress and is said to be physically fit. It should be noted that blood supply also helps us detoxify by removing waste!
Many ways. The blood carries nutrients, chemicals and oxygen to our body components. If this supply is increased, then all those affected areas can function that much better. Also, the blood removes breakdown products and toxins from those areas. So, you are getting more of the good stuff, and getting rid of more of the bad stuff faster.