I'd personally steer clear of a Dremel for this job. I just use sandpaper (P240, P400, P800) and then up through the micromesh grits. A Dremel runs far too fast for this type of task. Even the slower speed (which doesn't have much torque so the buffing wheel keeps slowing down) it is rotating very quickly and you can build up a lot of heat in milliseconds. This can loosen the frets in their slots (especially if they've been glued in) and it's so easy to slip with the Dremel, hit the fretboard and wear a scorched dent in the board. As a minimum you'd need to use a metal fret protector.

But now is not the time to polish frets. You'll be applying Tru-Oil to the neck and board, which will get on the frets, so you'll need to scrape or sand that off which will mean re-polishing them.

The amount of Tru-Oil used will depend on the finish you want. If you want a Fender-style full gloss, then you'll be looking at maybe 30 coats (with intermediate sanding). Or you can go with a more basic finish and keeping the wood feel and just use 3 or 4. The latter will wear through with use, so it will need maybe a yearly application of more Tru-Oil, but it's not an onerous task.

Yes, I'd sand the neck first, just to make sure that there are no dents and to remove loose fibres. Actually, I'd probably apply one coat of Tru-Oil first, let that dry for a couple of days, and then sand, as the Tru-Oil should then show up any low spots by remaining shiny. The maple neck should be pretty smooth already, so no need to start with anything rough unless you discover and deep pits that you want to sand down to. I'd probably use P180 and then, if I was happy with the overall neck, maybe P240, but nothing finer. And sand with the grain. It's obviously easier to sand across the fretboard between the frets, but you will make scratch marks that are hard to remove. You are almost certain to scratch the frets doing this, so another reason to wait until the last moment before fret polishing.

My one attempt to use a Dremel for fret polishing was on a maple board neck, and despite masking off the board, the Dremel moved slightly, tore off the masking tape and melted the finish in a fraction of a second. It took far longer to repair the damage than I would have saved by using the Dremel. If it can go wrong, it will.