How can my rank get worse when my site traffic is getting better?

The short answer is that any ranking system ranks you relative to others. The Alexa Traffic Rank ranks your site relative to all other sites in the world.

A good analogy is running a race. Let’s say that yesterday you finished the race in 3rd place. If you race again today and have a faster time, you could still finish in 4th place if 3 other people run faster than you. Even though you ran a faster race, your ‘ranking’ got worse because other people ran even faster.