When does sanding(smoothing out wood surface) sensibly apply
Sanding
The core of the sanding must be done before you finish your work; in other words, just after stripping.  Most paint strippers won't do a perfect job, sanding will help you remove the leftovers. Sanding can also be used to remove any existing scratches or dents.

Raising the grain (Optional)
Once your piece is perfect (no visible scratches and smooth), you can then choose to raise the grain or not.  Your stain's instructions will usually tell you if you have to do it or not. The goal of this step is to greatly reduce the fuzzies created by stains or finishes.

To raise the grain, you must:


Wet your piece,
Wipe the excess of water,
Let it dry overnight,
Sand the piece again with an extra fine paper (Rule of thumb: The next grit after your last sending grit.)


Maybe this is what you heard about smoothing the surface...

Staining
To be honest, read your stain's instructions and follow them.  Some products will require you to sand between coats and others will advise against it.

Varnishing
Varnishes usually requires you to lightly sand with extra fine grit between coats.  Once again, your product's instructions are your friends!


tl;dr

a) No.
b) No.

Read you product instructions.