Update! - Behold Xcode 9 to the rescue! Now you can use cmd + to increase the fonts with Xcode 9. It took 5 Major releases for you to get it, Apple! But better late than never.
figured it out - however it was not very intuitive.
First some Pain Points
When You try to change the font size directly using edit -> format -> font, nothing happens! - Not a good UX ... moreover why play dumb when you can tell user that they are using default or "System-owned" theme and they cannot change it? - Bad Design and more bad UX ... Why keep this option (Cmd t) alive, which by the way is most standard way to increase font size across most well behaved mac apps, if you do not want user to change the font this way?
In Xcode preferences, when you try to change the font size by clicking on "fonts and colors", thats when XCode gives a pop-up saying what needs to be done. Also making a duplicate and then changing the fonts and colors is a lot of work rather than giving a button that says "Restore to Defaults" if Apple is so worried about the user messing up the default settings!
The solution is that - you need to duplicate the theme and then modify the copy you just made and apply that copy - phew!