Wet sanding is something you never want to do with wood. Wet sanding is a method used on metal, stone, and other hard materials. Essentially what wet sanding does is use the water as a media to hold down and carry away the dust. It also has a secondary function of cleaning out the sandpaper as you go along. Wet sanding uses very fine grits, usually 600 and higher. If you were to sand with these fine grits dryly, the paper would clog up and become useless very quickly. One use for wetsanding is during the painting phase of restoring a car.

My friend restores VW Bugs and other older VW's. When it comes time paint, he will lay down a primer coat, let it dry, then wet sand to smooth out the primer coat. Secondary coats of colors, same situation, then the clear coat. He wet sands the clear coat to a get rid of any uneveness or runs in the clear coat. TO make it all smooth and even. Then he buffs the living daylights out of it to make smooth like glass.

Wet sanding can also be used on fiberglass, to keep the dust down and make the surface smooth.

Hope that this helps you out a little.