The Wii U doesn't upscale Wii games with component cables, but does upscale with HDMI cables.
The term "upscaling" shouldn't be confused with other terms like "uprender" or "re-render", however.
Regardless of which region your Wii U hails from, the actual source image of Wii games can't be re-rendered on the new console - and this is the key point to be aware of.
The terms "uprender" or "re-render" could involve the use of higher resolution textures and added anti-aliasing/smoothing to produce a visually improved image. These techniques are employed by Wii emulators, like Dolphin, to create a vastly superior image compared to the original Wii and what the Wii U can do.
Redoing all the assets within a game to better suit high definition is something that simply requires a great deal of work and better suited to a re-release or dedicated team of fans.
But what the Wii U is capable of doing, in theory, is applying a small amount of anti-aliasing to create a smoother image, but Nintendo isn't doing so with Wii games at the moment.
Why do Wii Games Look Better using HDMI?
Any game in theory should, using HDMI.
But looking specifically at Wii games in particular, using HDMI cables allow a digital signal to be transmitted from the Wii U console to the TV, where as older cables like component and composite transmit it an analogue format. Analogue has a varying rate and can degrade when the image and audio signals are zipped along the cable to the TV, where as digital is regarded as a far more consistent and practically loss-less format.
The improved signal with HDMI also has the potential to produce deeper colours, improved clarity in places which leads to a generally better picture when playing Wii games.
This is why Wii games over HDMI tend to look improved, but they are not a true HD image.
HDMI connectivity is certainly something to consider, if not insist on, when purchasing a TV/display for gaming and media playback. If the option is available, then without a doubt - HDMI cables should be used over component, and as for composite, perhaps used as decoration on a Christmas tree.