You see an SCX Ferrari 550 here as it comes out of the case. The tires are seated flat on the wheel.
Put the sandpaper on the track. Hold the car on top of the sandpaper. Pull the trigger on the controller and lower the car onto the sandpaper slowly. When the tires first begin to touch the sandpaper you're going to probably going to feel some bumping as the high spots on the tires start to hit the sandpaper. Now you're making the tires rounder or more "true".
As you first start to sand the tires do just a few seconds on the sandpaper to see where (or if) the sandpaper is hitting the high spots. If it looks like the paper is sanding the whole surface area of the tire you've got a pair of very round tires (and wheels to BTW since you will be able to see if they're round as well by doing this). If there are cuts from the sandpaper only here and there on the surface of the tire keep going you need to do more to sand down the tire.
Sanding tires is something that you will have to get a feel for. It's hard to explain how long you'll need to sand the tires for. It may sound simplistic to say but, if the car is smoother then you're done. The more you sand the smoother the car will get. Take your time and keep sanding is my advice. 
Sanding the tires will do several things really. It will allow you to see if the tires are seated on the wheel. It will allow you do see if the tires are round AND if the wheels are round too BTW.
Round wheels are really hard to come by. Many, many of the press-on plastic wheels that RTR cars come with aren't really all that round (somewhere a Scalextric fan is jumping up and down yelling, "mine are...mine are"...well we've heard enough out of you my friend so take a seat please while the rest of us do a bit of work!).
Tires you can sand...nearly any stock slot car tire can be sanded. Stock tires will pick up a good deal more grip if they're sanded.
-Urethane tires can be easily sanded, like Ortmann tires (which are usually in need of serious sanding due to generally poor molding), and K&D tires (which I don't have too much experience with yet but I just got a few sets and they seem to sand well).
-Silicone tires generally don't sand well, especially Super Tires brand tires, they're nearly impossible to sand, but luckily they're damn round so you shouldn't need to do much to them aside from keeping them clean.
Sanding the tires also will warm them up and clean them as the same time. So just before a race try a bit of sanding to get just a bit of an edge on your competition.
Dave Kennedy
Publisher, Slot Cars Blog
