Your first question asks whether HFT increases or decreases volatility. That's an open question, and the answer also depends on the time scale that you're looking at.
But volatility isn't the only axis on which to measure the health of the markets. The advent of electronic automated market making is also tied to drastic reduction of spreads, which are a tax that anyone trading has to pay to the market for the privilege of buying at the market.
A lot of people talk about spreads as if they were a meaningless abstraction, in sort of the same way as they talk about "liquidity". But in the 1990s, crooked human market makers (read: all market makers) rigged spreads to skim extra money off trades; look up the "odd eighths scandal". That doesn't happen anymore, and, more importantly, spreads (and their attendant cost to trading) are razor thin.
That's not the only thing automated electronic trading does to improve the markets. For instance, in the 80s and 90s, simply placing an order with a broker was extremely expensive. Today, there are no-fee brokers. Why? Because automated trading systems purchase the rights to internalize orders from retail brokers; if you're an automated market maker, retail order flow is practically risk free revenue, and all you have to do to earn it is hook your trading system up to brokers.