You can wet sand with any cloth or paper. The difference is that the abrasive designated for "wet sanding" uses a waterproof glue to hold the grit particles on the backing, and the backing itself may be impregnated with a waterproofing. If you wet sand with a dry medium, all of the particles will come off and have to be cleaned up with the slurry, and the paper cannot be reused. Other than the greater mess, there is no difference in sanding performance if the grit particles are the same material and size.
I have no idea whether the cloth abrasive sold by PSI is waterproof or not, but I suspect not.