there are a lot of things that go into sanding, it depends on which aspect you are referring to.
In a nutshell, sanding involves the broad stroke sanding to smooth out broad flat surfaces, and detail sanding to grind out detail lines or hard to reach areas.
Broad sanding is done with either a powered or unpowered mouse sander, or your hand and a sheet of sandpaper. You want to lay bondo very smoothly and minimally, and the sanding should only really be to further smooth it. A lot of people glop a lot of bondo on and then spend hours trying to sand it to size. You save a ton of time if you use a spreader and make sure the bondo is applied neatly.
For detail sanding, you really need a decent rotary tool and high quality files. A set of diamond files will set you back like 10$ and last you years if you treat them right, and they have been integral in really cleaning up lines. Rotaries are needed to grind out details, cut out holes (vents, visors) and drill. While there are cheap-o rotaries for around 30$, a 100$ dremel will last six times longer. I know there is apprehension in sinking a lot of money on a tool, but Dremels have really good RPM control and components that won't melt down under extensive use like the cheaper ones.
If you have specific questions on sanding, pictures can help.