To be more precise, it allows for greater economies of scope. Except for WN, I haven't seen much use of hubs to increase scale. Increasing scale would have, say, twice as many passengers but only a 50% increase in staffing, gates, tugs, etc., etc. In fact, quite the opposite is true, since hubs tend to have wide swings in load over the day, resulting in lower efficiency of the people and equipment on the ground.
The increase in scope comes from allowing more city pairs to be served with fewer aircraft and fewer empty seats.
But you're right on target about the revenue premiums. Those come from a couple of sources. One is the increased value of a nonstop over a connection. The other is the "loyalty" that is gained through the frequent flyer programs.
That's one question, to be sure. There are others to be asked regarding the profitability of the hub system.