Aaron,

Traditional varnishes require light sanding to scuff the surface creating a mechanical bond between the coats of varnish. There are some newer varnishes out there which don't require sanding between coats. One that I've used is Epifane's Wood Finish Gloss Varnish. There are others. They can bond chemically as long as they're applied correctly and within the right interval of time from the last coat. These no-sand finishes can still be sanded if you want to get rid of drips or sags but it isn't necessary. To keep it simple, just read and follow the label on whatever can of varnish you use and you should do fine.

Dan