Duplicolour makes a filler primer that works great for getting rid of tiny chips and scratches, whenever doing a tuch up job you want to get rid of the imperfections during the primer stage.
I would use 220 to 320 to feather in the paint with the bad spots then primer and then 500 grit to smooth the primer between coats, the amount of primer you use will depend on how bad the areas are, if you lightly dust the areas with the colour then wait about 15 minutes for it to flash between coats and then any where between a few hours to about 12 hours for it to dry before you shoot the clear on.
I have done this on plenty of cars and the results depend on the age of the paint on the car. If the paint is really bad you can always re-paint the entire panel instead of trying to spot paint.
If you try to spot paint it, the best way i have found so far to help blend it without a blending agent is to roll the masking tape long ways, so you kinda make a tube shape out of the tape, this helps to eliminate definite masking lines between the new and the old paint.