Carlo Ancelotti's Real won a double of the UEFA Champions League and Copa del Rey last season, but could only finish third in La Liga behind Barcelona and Simeone's men - who secured the club's first league title in 18 years.
However, Real have bolstered their squad during the close-season with the additions of Colombia international James Rodriguez from Monaco and Costa Rica goalkeeper Keylor Navas.
Kroos, fresh from winning the World Cup with Germany, has also arrived from Bayern Munich and Simeone believes he will be key for Real this season.
"Madrid [have] improved," he said at a pre-match news conference for Tuesday's Supercopa de Espana first-leg tie between Real and Atletico at the Santiago Bernabeu.
"Kroos gives them greater potential in the middle of the field, more balance. It is a lot better than last year's team."
The Supercopa clash with Real gives Atletico the opportunity to bounce back from May's Champions League final defeat to their city rivals.
However, Atletico captain Gabi rejected the notion that the two-legged tie is a revenge mission.
"There is no feeling of revenge for the Champions League final," he commented. "It is an opportunity to win a title.
"Real Madrid are one of the best teams in the world. The Supercopa will be won by who is better physically and mentally."
