You CAN use a Dremel (or a Foredom type flex shaft tool) for polishing. It's better to use a 4 to 8" muslin buff mounted on a polishing motor spindle in a hooded, fan equipped housing but the small tools will do the job, slowly.
The sanding stuff that Dremel sells is pretty coarse, too rough for much jewelry finish work. Better to use fine sanding disks (Adalox, etc) that snap on to a spindle in the Dremel. Rio, TSI and other tool places have them.
Craytex (rubber abrasive) wheels are good for smoothing, also. Small files and fine grit ( 320, 600 ) sand paper is better for jewelry.
Then use the tiny hard felt disks with Tripoli for fast preliminary polishing and the small muslin buffing wheels with Zam or Rouge polishing compound for final polishing. R&T does carry the polishing compounds as do all the jewelry tool places and some Dremel distributors.
If you can get a "real" jeweler (like a silver or goldsmith) or repair shop to show you their workshop, tools, buffer and the like you'll get a better picture of what I'm talking about.