How does a worm improve the quality of the soil in which it lives?

The worm helps to loosen the soil, and it's castings are rich in organic materials, but the primary function of worms is to act as a marker that the soil is rich in organic material, as they will not inhabit very poor soil. It is good to have worms in your garden, but their importance to the soil's health has been greatly exaggerated in the past. They do - a tiny bit - make the soil healthier, but mostly they just show that the soil is good soil.