What's the reason PS3 and Xbox 360 games looked much worse in 2007 than in 2013? Is it because 3D frameworks got optimized? Or did C++ get faster?

The only thing I have to add to Martins excellent answer is that the Sony, Microsoft, etc publish more information on optimization and sometimes do offer more optimized compilers and libraries as they have time to work on them  later in the console cycle. In that timeframe, the console's support and technology teams learn how to get more from their own hardware and share that with their development community. Also consider that at the beginning of a console cycle many publishers don't want to take big risks on new hardware until they see it available in significant numbers. In such cases publishers will want a game to work on older gen hardware too. This usually means that the games that go on the more capable system aren't really taking advantage of the full capabilities if the new hardware because of the higher development cost of porting between the systems of different generations. In my opinion the most visually impressive games are the ones that are exclusive to a given platform and release just before new hardware hits and the better developers aren't yet distracted by new toys.

First I agree with Andrew and Martin. Developers needs to learn how to work on a new console. When they mastered their console developing skill, certainly they can do a better job. Publishers and developers on game engine (like guys in Epic) are the same. But there is another thing which I think is very important but most people won't mention. That is, developer has a new understanding of "what makes a game look good?" due to hardware upgrade. At beginning of a new console generation, developers would be very happy upgrade their bottle neck which made them suffered a lot in the previous generation. Take PS2 to PS3 for example, most developers wants the hardware to support more polygons and bigger textures. So when the new console comes, some developers would be very happy to use something like 3 times more polygons and 16 times bigger textures and it is an upgrade in graphics. Does it improve the graphics? Yes, indeed. But that's not good enough. Especially when someone released a much better looking game with less as much polygon count and smaller texture.(e.g. MGS4 is using textures no bigger than 512*512 but killed many other games  using 1024 * 1024 or even 2048 * 2048 ones at that time).Developers will realize it's not about bigger numbers of what they are using, it's a new way of thinking "how to make games look better" PS3/XBOX 360 generation has already changed the industry of thinking "What make a game look nicer" a lot, developers are talking about shaders, lighting, post process, physics and so many different approaches to make make a more realistic game. They are focusing on so many different aspects to make the game look better which they don't know at the beginning of the console gen. Hardware upgrades opens new world for developers to explore as well, it take time for them to find the path to a better looking game. It's not just optimization it's a different way of thinking "what makes a game look good". We have came a long way from pixel to polygon to material to lighting and physics. And for sure PS4 and XBOX One will give us more surprisingly better looking games with new ways to define "good looking game" as well. Hope the it helps.