Dry sand the epoxy before varnishing. If you want the smoothest surface use a fairing board with 80 grit. Using random orbital sander (ROS) is quicker but will leave some waves. Don't try to wet sand epoxy. It is a great way to control the dust but you won't be able to see the cloth if (no when) you sand too deep. I finish all of the dry sanding then sweep out the garage and then blow out the garage with a leaf blower.

After sanding I wash with ammonia water to get rid of the sanding dust that just won't wipe off the hull.

I wet sand between the varnish coats. The sandpaper will gum up if you dry sand varnish. Wet sanding outside on the driveway will help control the dust during the varnishing. I also mist the floor, wear fresh washed clothes and wear a hat to keep the dust down.

http://www.greenval.com/FAQvarnishing.html