how does the story about the contest in the casablanca bar add to the credibility of the main plot

This adds credibility to Santiago as quite the man-specimen in his youth. It tells us that like the big Marlin, he has faced a similar foe in the arm wrestling competition with the big negro. SAntiago is all about the myth. He sees himself in mythic proportions worthy of catching such a magnificent fish. He past competitions serve to reinforce this idea.