In this paper, we propose a new data-driven traffic state estimation model that estimates traffic flow based on average speed data only. The model is devised to implement a cost-effective framework that aggregates heterogeneous sources of vehicles' GPS and speed measurements to infer traffic flow using a novel triplet system called Conditionally Gaussian Observed Markov Fuzzy Switching Systems (CGOMFSM). Unlike its hard counterpart, CGOMFSM allows for a transient and gradual representation of traffic state transition and hence improves the estimation performance using a tractable scheme. The potential of the proposed model is illustrated through an application to the problem of traffic incident detection, particularly sporadic traffic congestion caused by unexpected road conditions. The performance of the proposed model is assessed using real traffic datasets from England highways. A simulation of traffic in the city of Salalah in Oman was conducted to evaluate the efficacy of the CGOMFSM-based traffic estimation and incident detection schemes with different penetration rates.