How do you sand the wood?

Yes, you can re-sand solid wood; take care with veneer so as to not go through it. Sand enough to rough it up and stain again, there's no need for...

You could use nail polish remover. Just dab it in a cloth and rub it gently on the surface to remove the markings.

Yes, if you allow it to dry all the way. Moist wood is to hard to use, but dry wood can be used.

For outdoor use, I recommend using Douglas fir or vertical grain Douglas fir. These woods hold up very well in outdoor conditions over time. For indoor signs, good choices are...

Yes, you may use decaying wood dirt. In the wild, pill bugs feed on decaying wood.

Yes, the article did say you could dry the sand overnight. There were 2 options: to bake the sand and to dry it overnight naturally.

Yes—you could sand the wood all the way down to the bare wood underneath the stain and then re-stain it with a lighter color.

Use a furniture refinisher to dissolve the stain and scrub it away with a bit of steel wool. Although it still involves some scrubbing, this approach is less damaging to...

I recommend sanding down the wood for a smooth finish. After, apply primer, sanding in between coats of primer in order to get a better adhesion to the paint.