Currently I am using XP 32 bit with 4 GB RAM and Core i3 processor. I am using this system for the multi PC. Now I wanted to upgrade my CPU with the 8 GB RAM or even more and also use Windows 7 64 bit. Does this makes my CPU faster than before?
I think you are making the common mistake of calling the computer as a whole the CPU. The central processing unit (CPU) is the "brains" of the computer and will run at the same speed, regardless of how much memory you have.
Generally speaking, more memory will make your computer run faster. 8 GB is plenty for most people. You say you are using it for "multi PC" which I am assuming is for virtual machines. If that is the case, you need to consider how many virtual PCs you intend on running simultaneously, as well as what their recommended minimum values of memory. For example, you could run 3 virtual Linux OSs with 2 GB of RAM for each, leaving 2 for the host machine. That may work for you, or you might need more. Its something you need to figure out.
Yes and no.
No in that more ram will not make your CPU faster - your CPU is still doing the same amount of work. (A CPU has a very specific meaning, being the "Core i3 processor" in your case. The entire box, which contains the motherboard, ram, cpu, hard drive, power supply etc is sometimes called the CPU by people who don't know better, but they are misusing the term).
Yes in that it probably will make your system faster. By making more memory available to the system more data can be cached in RAM, so there will be less hard drive activity, and less swapping to memory so your system will perform better. It is also likely that Windows 7 will perform better then XP - but this is not to do with a faster CPU.