A wax and/or oil or just about anything a little viscous (sticky, thick, etc.) helps sometimes. Now, what we're talking about here is wet sanding the WOOD and not wet sanding a FINISH applied to that wood. Completely different animals there.
A few different reasons for using it that are often cited...
1) Less heat - Heat is your enemy in sanding. You'll get some slipping, yes, with the use of wax but you'll also be able to prolong your sanding with less heat buildup
2) Less dust - This is obvious. Not really having to do with making your sanding more effective but just nicer to work at.
3) Helps with tearout and fuzzies - the wax fills the voids between fibers and tearout holes making things a bit stiffer so that the sanding (or even the tool usage) cuts off those fibers instead of just laying them over. It gives it more support, in other words.
4) Fills the grain - Can give the appearance (at least initially) that the wood is "denser" or more closed than it actually is. The wax fills the grain much like a sealer coat would. Of course, this can cause problems too (see below) but it's a quick way to fill very very tiny problem areas too.
5) Easier to see tearout areas - They tend to show up as dark blotchy areas.
And some problems with it....
1) Can interfere with your finish of choice. Wax, oil, etc. don't go well with other finishes. Sometimes, if it's an actual drying/curing oil, you can let it completely dry/cure and then use that finish when you couldn't have otherwise.
2) Fills the grain - This can "muddy" the appearance of some woods. Not usually a problem with burls though. I equate it to the effect you'll get with a slightly out of focus picture. You don't get nice, sharp, definitive looking wood. This is either good or bad depending on what effect you want to achieve.
3) Sandpaper loading - You'll quickly fill up your sandpaper with the wax. Some sandpaper is good at being able to be cleaned but many are not. Lots of ways to try to clean the gunk off but it usually involves messing up the sandpaper particles sufficiently that it's no longer acceptable to use. I usually reserve my sanding with wax/oil/etc. to the very very last detailing step (if need be) for this reason. Keep the sandpaper moving quickly to new/fresh areas of the sandpaper.