How can I increase my iPad storage?

System storage includes a lot of cached data. Unless you are approaching the limits of available free space, you should have no concerns. iPadOS16, if installed, appears to make more use of available storage for temporary system caches.

Reported System Data (a.k.a. “other data”) can be expected to fluctuate. Your iPad will automatically and optimally manage its available system resources, using available free space to cache data and improve overall performance.

It is impossible to increase the amount of RAM or internal storage in your iPad - as this is fixed during manufacture; what you have is fixed for the life of your device. You can, however, subscribe to a higher tier of iCloud storage - but this is not a substitute for internal storage.

Upgrade to iCloud+ - Apple Support

If your internal storage is full, your only option is to better manage the storage that you have - and delete unused Apps or unneeded data. 

These support pages should prove to be helpful:

About storage on your device and in iCloud – Apple Support

What's the difference between device storage and iCloud storage? – Apple Support

Manage your iCloud storage – Apple Support

How to check the storage on your iPhone, iPad and iPod touch – Apple Support

Clear Other storage on your iPhone or iPad - Apple Support

“Offloading” Apps can be a helpful method of creating temporary space for a software update.

https://9to5mac.com/2020/01/21/how-to-offload-apps-in-ios-to-save-space-without-deleting-their-data/

Additional information about creating sufficient space for installation of a software update can be found here:

If you need more space for an update on your iPhone, iPad, or iPod touch - Apple Support

External storage options can often help with managing limited internal storage. Depending upon your iPad model, the iPad will either have a Lightning or USB-C port - and may therefore require either an Adapter or USB hub to connect the USB Storage device. If your iPad has a Lightning port, you’ll need an Apple Lightning to USB3 Camera Adapter:

• Lightning to USB 3 Camera Adapter

https://store.apple.com/uk/xc/product/MK0W2ZM/A

You cannot. You need to manage with what you have. Internal storage cannot be increased.