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It seems what can be safely concluded from this thread is that using a dremel can be risky business in inexperienced hands, and succumbs from a higher margin of error (when compared to hand polishing or compounds and bench buffing) that might result in the damage of your blade or yourself (I do hope for a clean recovery Scott).
*Removed question*
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Yes. you sand up to 2000 grit, and then switch to micromesh pads or polishing compound.
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By super secret Ninja spells.
Looking at the second picture, visualize putting the spine of the razor against that wood "notch". The magnets, rare earth, hold it in place. If I am working on a highly polished razor I will put a layer of tape over the magnets. The cutting edge of the razor holds the edge of the razor on the aluminum, flat. This way, you can hand sand in a direction other than parallel to the spine.