Overclocking your CPU or FSB can damage components, however, if you do it in small increments, like increasing the FSB a few MHz at a time, all the while watching your system and CPU temps, then the likelihood of doing any instant an irreversible damages to your CPU or motherboard is very slim.
As cyclist said, increasing the FSB not only increases the CPU speed, it also increases the speed in which the CPU interfaces with the memory. If you were to take two CPU's, both with identical clock speeds, and have one running a 166MHz FSB and one running a 200MHz FSB, then the system running at 200MHz will likely score better in benchmarks.
Basically, though, the best way to overclock is to take one parameter, let's say CPU multiplier, and increase it one step at a time until you start getting errors. Then you can either increase the core voltage to the CPU, or back it off a step. This way, you know how fast your CPU can actually go stably. Then you'd lower the multiplier, and increase the FSB 2-4 MHz at a time until you start getting errors. That will tell you your max stable FSB the motherboard can handle. Once you've done that, increase the CPU multiplier until you get right around the highest stable CPU speed, and voila! An overclocked system.
Keep in mind, you take your own risks when running a system out of spec. Make sure you have a suitable cooling system installed, and watch your temperatures while you are doing all of your testing. Basically, in order to test you're going to want to run a program like Prime95 for awhile, or run a few sets of 3DMark. If your temps start getting too high, then back off the speed and or voltages.
This should help you get started, but you may want to check out places like
www.overclockers.com or
www.hardocp.com for more info on overclocking.
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