Parallax a side, the PCE has the exact same restraints as the Genesis and SNES; memory (rom). CD 1.0 and 2.0 are extremely restricted and yet some decent amount of games were made for it. CD 3.0 is what should have been in the first place, but it also has its limitations. By the time SCD 3.0 came out, it was already behind in memory restrictions of the era. The Arcade card is about right on target (look at the huge carts on the SNES around 94-95 era), but at the end of the PCE's life.
The CD addon doesn't give it graphical upgrades like the SegaCD, or addon chips like the SuperFX, SVP, DSPs, etc. Just more memory. What you're seeing, in the difference between hucards and CD games, is a split going from one format to another - at the same time games and standards (graphics related in particular) were being raised. Just look at the early hucards in relation to the late gen games; the system was always capable of the late gen games (just like the evolution of game standards on the Genesis, etc). So the CD system replacing the hucard format is just a coinciding event in time, and not particularly the reason why PCE games became "better". The PCE had that early 16bit charm to it, and it just took longer for the system to shed that image than it did on other systems.