Whether you use sandpaper or stones, get a Veritas sharpening jig. It consists of a fixture for the the chisel/plane iron and a gauge for setting the proper angle.

I have't used sandpaper on tools, but I have sharpened broadhead blades with it and it works fine. For chisels and plane blades, I use coarse and fine diamond hones (they don't wear out, but they're expensive) and a 6000 grit whetstone for final polishing. I get the same results as the "Scary Sharp" method, though at a much higher initial cost.

The coarse hone is only necessary for abused blades. Grind the edge square on a bench grinder (you can use a file if you don't have a grinder), then take it down to ~1/64" before switching to the hone, being careful not to burn the steel. Use the coarse hone to give the blade the correct bevel and take the edge all the way down, then switch to the fine hone. Once the marks from the coase hone are gone, switch to the 6000 grit stone for final polishing. Make sure to cut a secondary bevel as explained in the instructions with the Veritas jig. You'll be astounded by how well the tools cut when they're this sharp.