Yes, wet sanding does cut down on dust. But as important, wet sanding will soften up the wood and makes sanding quicker and easier.
On bowls, sometimes you will get tear out on the end grain, wet sanding will help take care of this while producing less heat, which can be a problem on larger turnings. To much heat from dry sanding can create hair line cracks in the wood.
Some people leave the "sanding mud" in the small openings, I don't like the way that looks, MPO.
Wet sanding will also help pop the grain on highly figured woods. When you apply oil to the wood, the oil soaks in to the softer areas faster, by wet sanding the oils will soak in to the soft areas quickly and never really get a chance to soak into the harder areas.