That's right. You can keep moving up in diameter or pitch to improve performance until you reach a certain critical point. At this point your performance will start to drop back off because you are overloading the engine.

For example, perhaps a 12x6 gives you 11,200 RPM which is where your engine will give best performance. If you switch to a 12x10 you won't get better performance because now the engine is only turning at 8,400 RPM due to the increased load. IF the engine could turn both the same RPM then you would see a large improvement in top speed.

Lower pitch = more thrust, low speed
higher pitch = less thrust, higher speed
More blades on a prop = less efficient
To add a blade without increasing load, lower the pitch by 1.
Larger diameter, lower RPM = more efficient

A prop is just an airfoil. It works off the same aerodynamic principals as a wing.