No Water
I have never used water on my finger to smooth the gel coat, and wouldn't consider it. I use small tools, such as palette knives, which can be found at art supply stores.
I learned to do this many years ago as a teenageer, working in Michigan at a Sea Ray Boat dealer, which at the time was the largest in the world. I visited the factory many times, and learned from what I saw the pros do. I ended up doing a lot of minor gel coat repair, in all different colors. If you have an older Mac as I do, you're in luck, because the gel coat is plain white.
Realize the method I describe is for minor scratch repair. More serious damage will require other techniques.
1) Remove loose or jagged edges. Sometimes you can simply/carefully use a knife to do this. You want to flare the edges a little, slope them. A dremel works great for this. Go slow, be careful, you don't want to make the repair area bigger.
2) Clean the area, light sanding wouldn't hurt, to get wax etc., off the surrounding area as Nik said. I use acetone to get all the dust and everything else off, just prior to apply my first application of gel coat. Use an appropriate size pallette knife for the job. Try to keep the layer you apply as low as possible. It will shrink when it cures. Don't assume you're gonna have it fixed in one application. Don't smear the gel coat all over the place. Keep it on the repair area, overlapping the surrounding original gel coat minimally. The flaring you did previously will be important to allow feathering.
3) Once it's hardened, use a small wood block, 1x1x3 or thereabout, wrapped with wet dry sandpaper. You can start with 400, but finish with at least 600. Use a spray bottle of water, keeping the area dripping wet. I'll have the sanding block in one hand, sanding mostly in a circular motion, though it does depend on the contours of the area you're repairing, using light pressure. Spray bottle in the other hand, spraying right over my sanding hand almost constantly. As the sandpaper wears fold over, wrap around the block again to get a good surface and continue. Get comfortable, take your time, slowly keep working at it. Soon you'll see the edges are exactly the same level as the surounding area, but likely a low spot in the middle. (Note: As you go along, dry the area with a towel for examination. If it's really wet you won't be able to tell when it's perfect).
Dry everything, clean with acetone, apply another layer of gel coat, let cure and sand some more. Repeat as many times as necessary to fill the void. Be very careful not to sand so much on the edges, so as to go competely through the original gel coat to the matte below. Also, apply fairly thin layers. In other words, if the gouge is real deep, don't try to fill the void in the first application, it'll take a lot longer to cure.
3) Once it's perfect, rub it out with fiberglass rubbing compound to remove the fine scratches. The finer the sandpaper you used to finish, the better finish you'll get.
4) Apply a coat of wax -- DONE!
Here's a couple more pic's. The second shot is after I finished the repair, and I just waxed the entire hull. Down low there was a lot more damage you couldn't see in my previous post. There were some long scratches along the sides, and some other misc gouges. That's why I like gel coat, it's easy to fix, no need to paint!
I did the repair in June 2005. The other pic is the way it looks today, there's no sign of the repair coming loose. It's still very hard to tell where the repair is. In fact I might be the only one who can tell, most people would never know it was repaired.
Right now I'm working on some mods to the interior. There's some unsused screw holes put there by the PO in the liner. I'll fix those the same way. Screw holes are very easy to fix.