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I mixed and sprayed a flat finish on a '68 Newport and I dry-sanded/scuffed with 800 between coats.

On a fender skirt I experimented with wetsanding between coats and it made no difference at all over dry sanding.

When it's all finished, you can wetsand it until it's at whatever gloss/flatness you like - again, I experimented and found that wetsand with 1200 then 2000, then a rubbing compound actually made a flat finish into a gloss finish.

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wetsanding does produce a smoother finish between coats and the final wetsand just due to keeping the sand paper cleaner. But the biggest benifit to wetsanding is reducing the amount of airborne dust in your painting area. Once the garage door closes for me after a real good cleaning, the door does not open until it's done to avoid as much dirt/dust/hair as possible, that will allways be your biggest battle regardless of how or what method you choose to paint with.