Just so I have a understanding, when you block for a flat panel you dry sand 2k. But when you sand 2k to remove scratches on a already flat panel you wet sand it right?

No.
Wet or dry is a personal choice, it'll work either way.
Usually the finer grits work better when wet because they don't
load up when wet, but for getting a panel straight, the coarser grits
are what is needed, so it doesn't matter with them.
I still do dry and wet and get the same results,
but I'm leaning more toward dry.
And remember, if you're sanding any type of filler,
you want to keep it dry, at least until you get primer on it.

I dry sand whenever possible just to avoid making a mess with water. I hate dealing with it. Usually the sandpaper you use and the type of primer you are sanding will determine when you need to wet sand. Like JC said, the perpose of wetsanding is to keep the sandpaper from clogging. You weren't entirely wrong with your initial thinking that wet sanding is for removing scratches because when you sand with around 400 or higher grit, the paper tends to clog worse. And you usually use 400 or higher sandpaper to remove scratches from previously sanded surfaces to smooth them out for paint.

Thank you Thank you Thank you!! I’m a new member here and this is exactly what I was looking for. I was sanding my 2K primer with 400 and jiminey Xmas it was clogging bad! I just kept blowing it with air a lot. Now, off to the wet sand races! Much appreciated!