In other words, what does my ISP have to do differently that allows them to charge more for only slightly faster speeds. Do they have to connect me to better hardware? Does it take more power? Or is it simply marketing?
Your ISP caps the rate at which you can upload or download data, in principal so that there's enough capacity for all their customers. Paying for faster internet, unless you're getting fiber or something, just means paying them to raise your cap.
Does this mean it's a matter that seasoned programmers could lift on their own, or is regulated by HQ? The reason I ask is because I remember people back in the day fooling with their cable boxes to get free HBO and what not. Could the same happen with internet? Does it?
The limit is entirely on the ISPs side so there is no way to increase the bandwidth from your end. As a crude analogy, think of it in terms of being a pipe. Even if you have a 5 inch pipe on your end, if the ISP only has a 1 inch pipe that's the limit. To increase the speed they would need to put in a larger pipe. (I told you it was crude)
I have friends in Kansas City near some neighborhoods where Google Fiber is being installed. In response, their ISP (Time Warner) doubled their internet speed for free in order to keep customers.