You have a chance to hit with bow which is determiend by dexterity - this is you maximum chance to hit. However, this chance to hit reduces with distance - and this is where accuracy becomes important. So, if your chance to hit from a certain distance is too low, then increase your perception.

Quoting from the wiki page:

Perception

- Accuracy when shooting over distances
- Every 0.2 meters from the target reduces chance to hit by 1%
- Each point of Perception increases the distance before penalties due to range take effect by 0.4 meters.

In order to boost your damage output, you have to put skill points into "bow" (or something like this) under weapons tab in the skills list.