Why do grindstones produce a finer finish than sandpaper?
A grinding wheel is a fundamentally different tool and is self shaping.  Whereas sandpaper has protruding edges at the resolution of the grit that tend to be lost in whole pieces as the paper wears, the grinding stone instead has a more or less flat surface with voids at the correct resolution.  The other factor is that the grinding stone works at a much higher velocity, which allows it to remove less material per pass than the sand paper, averaging out whatever gouges it creates and functioning the way a higher grit would at a lower velocity.  Even with sandpaper, you will find you can get a finer finish with gentle sanding than with rough.  If you use a sanding wheel to compare, you'll likely have much more similar results, and it also helps to pre-wear the sandpaper before sanding something fine.  When particles come loose from sandpaper they also tend to gouge.  When I'm wet sanding opal, whatever grit I'm using, I abuse the sandpaper a bit first with a suitably soft but less expensive stone to get rid of loose bits and jaggies.  I also have a 4000 grit diamond stone and a 600 grit Arkansas dry stone.  If I wet grind with the Arkansas dry stone, I can actually get a finer finish than with the 4000 grit diamond stone by utilizing the slurry that builds up as I grind, which functions as a much finer than 600 grit polishing paste.
400 grit is about 22 microns big, but if you spin it fast enough, you may only be using the outer 5 or less microns for example.