It is important to not skip grits because each grit is designed to remove the scratches from the previous grit.
You are putting too much pressure on the sander and moving the Sander too fast across the surface.
The key to sanding wood without leaving scratches is to use the correct grit and the order without skipping more than 60 grit numbers at a time .
The fastest way to sand wood by hand is to use a good quality sanding block with the correct grit of sandpaper.
Yes, you can sand wood indoors as long as you take steps to eliminate or control the dust that results from it