"Moderation in all things" applies to sanding, too
A. In most cases, Naomi, we stop sanding at 220 grit in the WOOD® magazine shop because it's the finish you apply that determines the final smoothness of your project. By the time you've reached 220, the remaining sanding scratches are so small that a film-forming finish—such as lacquer or varnish—easily fills them. The key to producing a super-smooth finish lies in leveling each coat of finish, and then rubbing out the final coat.
However, we sand to 320 grit when we plan to apply an oil finish. Oil soaks into the wood, rather than forming a film, so you still feel the wood surface after the finishing process is complete, and the extra smoothness pays off.
Also, you might choose to use finer grits to control color when you plan to apply pigmented stain (it's not as much of a concern with dye). Stain colors wood by depositing pigment particles in pores and grain lines. When you sand to finer grits, you remove some of those lodging spots, and you wind up with a lighter color. The difference can be subtle; but if you pay close attention to color, it's worth doing a quick test on samples, as pictured here.