Actually the water cleans out the "dust" from the areas between the aluminum oxide that comprises what makes sand paper, sand paper, and doesn't allow the paper to be clogged with material, soft talc, that will make it so that the grit doesn't contact the surface, but just push around the sanding dust. After about 2 seconds of sanding look at the paper, you'll see it is full of material, talc, etc.... now rub your hand over it and compare to a clean sheet. Wet sanding always keeps the grit "open" and thus more abrasive.
