My suggestion always for the new guys at trying to polish is to try it dry first just to be able to get a feeling of it, wet sanding is more for the experienced person and has to be monitored a lot closer, believe me, you will go right through your paint if you are not careful. If you have some spare bodies that would be best. I personally like to wet sand it, like Jake-off says, the pads will last longer and at least in my opinion, the results are better. I have known a few modelers that use the pads dry and get perfect results so in reality it doesn't matter. I have even heard of a few guys using liquid detergent when using them wet for a smoother feel and better results. The key word here is practice.
I always start with a 3200 but if you have a smooth paintjob from the start, you can definetly start with the higher grids like the 3600 or even the 4000. I have also known of guys just using the 3200 or the 3600 and going straight to the polishing, with so many good polishing products available nowadays sometimes there is no need to follow through with all the pads. For me is more of a personal choice, I like using all my pads but also enjoy going through the process. To some people polishing is a tedious and boring process.