The Guild Wars 2 wiki states that Magic find is an attribute which increases a players chance to receive rare loot from drops, which would indicate that the quality of the drops increases, rather than the number of drops. This forum thread on Guild Wars 2 Guru again indicates that it is the quality of the items that increases, rather than the number of drops.
In addition to increasing the quality of drops, it will also effect getting crafting materials.
The current common belief is that all of your bonuses to magic find are additive and is used as a modifier value. So for example, if you have two bonuses of 50% magic find, you will end up with 100% total magic find.
If a mob had a 5% to drop a ‘fine’ quality crafting ingredient or piece of equipment that chance would be increased by the value of your magic find (100%) to 10%.
The easiest and cheapest way is to buy/make magic find food, but it is also possible to get magic find items, upgrades, and runes.
Good food to eat in order to increase your magic find is the Omnomberry Bar or Chocolate Omnomberry Cream. Chocolate Omnomberry Cream provides a 40% magic find bonus but for farming in general it would be better to use Omnomberry Bars as this also provides a +Gold find bonus, in addition to some experience.