Most varnishes will feel dry within a relatively short time, especially in warmer weather; however, they will not fully cure for several days. When recoating, allow sufficient time for the previous coat to cure as additional layers may prevent solvents completely evaporating, leaving a soft surface. After the first coat, (whether thinned or not) sand lightly to remove any grain that has lifted above the surface. To remove brush marks or the inevitable dirt particles, rub gently with a fine grade of paper. A general sand will allow the next coat to completely cover the area. A fine grade of wet & dry used to level the surface prior to the final coat will product a near mirror surface.
Not all products need sanding between coats so read the instructions. Many varnishes & most polyurethane finishes have both a minimum & maximum time between coats for best results. The minimum time allows the film to harden enough to allow the next coat, but no so hard that the next coat will not bind (key) to it. If the recoating time is exceeded, then a light sanding is often necessary to provide a suitable surface for the next coat. These products rely on film thickness to protect the wood, so avoid excessive sanding.