As always, great answer Lynn!
To me, "improving the breed" in a breeding program, simply put, means taking to quality specimens of the breed, pairing them to one another based on their physical attributes and how they compliment one another, and breeding them with the goal of producing off-spring that more closely match the "ideal Yorkie" as per breed standard than the parents do.
Judging in a ring consists of a judge determining which dog mirrors the breed standard most closely. Ideally, the off-spring should match it more closely than the parents do. So the question is, when you have to fabulous dogs to start out with, how could you possibly create something even better? Not so easily done--but THAT is the overall goal and the challenge in the grand scheme of things.
At least that's my take on it.