They work the way gullets on sawblades do, giving the shavings a place to go. The spaces in an open coat are hard to see in fine grits but are very obvious in coarse grades. Closed-coat sandpaper, where the backing is entirely covered with abrasive, is not appropriate for sanding wood because the swarf has no place to go and quickly clogs the paper. Closed-coat sandpaper is more appropriate on other materials such as steel and glass because the particles of swarf are much smaller. Some sandpaper is advertised as non-loading, or stearated.
Stearated papers are only useful for sanding finishes and resinous woods.
Wood resin and most finishes will become molten from the heat generated by sanding, even hand-sanding. In this state, these substances are very sticky, and given the chance, they will firmly glue themselves to the sandpaper. Stearates work by attaching to the molten swarf, making it slippery, not sticky, and preventing it from bonding to the sandpaper.