Why is sanding required between layers of lacquer paint?
As @Nick2253 commented, sanding between coats promotes better adhesion of the next coat. This occurs because a rougher surface has more area and "features" for the next coat to grab onto. That's why it's easier to scrape paint off of a smooth surface like glass than a relatively rough one like wood.

Sanding also helps remove any bumps from dust that's settled on the surface before the paint/lacquer/poly dries.

Since you're worried about dust, you could see if wet sanding is an option for the type of lacquer you're working with. Otherwise, know that "sand between coats" generally means a very light sanding which won't produce as much dust. You obviously don't want to sand heavily enough to remove all or most of the coat you just applied.

For poly, I sand with 220 or 320 grit with a hand sanding block between coats. The pressure I apply is basically the weight of the block, and I only make one or two passes. Most of the dust created is easily wiped up with a damp rag afterwards.