There's no doubt that a clean guitar is a longer-lived guitar, and there's an argument that cleaner frets are better for tone (although that one's a little less cut and dry). Want an even better reason to buff up those frets, though? Nice shiny frets are, simply, a pleasure to play on (that goes double in you like to bend strings).
A little fret polishing should be part of everyone's regular maintenance routine. You don't need to go crazy and it doesn't need to take hours a week—a couple of minutes every now and then can work wonders, though.
Incidentally, if you're wondering how often you should do this, or any sort of maintenance, it's a bit hard to say since every player's different. The best advice is to keep an eye on your fret condition—maybe when you change strings—and you'll soon get a feel for how long you can go between clean-ups.
Frets don't rust or even corrode much but they can get tarnished, which can make them feel a little 'gritty' to play on. Unless it's been a long time between cleanings, however, a quick polish will generally have them shiny in a jiffy.
Now, this fret-shining job needs an abrasive of some sort. We have a few options:
Steel wool is the traditional choice and it does a great job at polishing. However, it does 'shed' and leave tiny shavings and slivers of itself behind. If you use steel wool, you need to be careful. Vacuum really well afterwards and whatever you do, don't rub any wool residue on your guitar body because it will scratch it.
Steel wool comes in a different grades. You'll want the finest grade which is 0000. Don't use any other grade.
Oh, and one last thing to be careful of: Because your pickups have a honking-great magnet inside, they will grab any steel wool shavings that come near. This isn't good so cover up your pickups really well before you start.
Personally, I hate using steel wool. It's really good at the job but clean-up afterwards is a pain and it's almost impossible to prevent those fibres getting places you don't want.
Find it: Your local hardware store or the entire internet.
Micromesh Finishing Abrasives
Micromesh is great. It's similar to sandpaper but it's fine abrasive is on a rubberised cloth backing rather than paper. It's nicely flexible and works really well.
Like sandpaper, it's available in different grits. I'll generally go with a couple in succession on each fret—2400 followed by 4000 (or similar). Sometimes I finish off with a higher grit if I'm feeling crazy but you'll get a good result with those grits.
The drawback of Micromesh is that it's bloody expensive. You can wash out your paper to extend its lifespan but it still runs pretty steep. I use it for loads of jobs so I have the luxury of having it around but, if you just want it for frets, I'd move on to the next item below.
Find it: Get it at Stewart McDonald or you can sometimes find it more cheaply on eBay if you're lucky.
3M Polishing papers
Probably your best option. They're called polishing 'papers' but it's more like a thin fabric. It's flexible and comes in a number of fine grits or grades. Each grit comes in a different colour. I tend to use the grey 600-grit and follow it with the blue 1200-grit for a decent shine.
D'Addario/Planet Waves sell some pre-cut, small sheets of the 1200-grit (blue) polishing paper in a pack as the Fret Polishing Kit. While this pack comes with a cardboard 'fret guard', you'll get a much better deal buying these papers in the larger, standard size and cutting them to size yourself.
Find it: Planet Waves product at the usual virtual and real music stores. For the full-size sheet, Stewart McDonald sell 'em and you should find them in loads of places around the web if you Google it.
Anything else I need?
You're not using very rough abrasives but it makes sense to protect your fingerboard (particularly if it's maple). You can use some low-tack tape (stick it on your shirt first to remove some stickiness) either side of a fret but that's a bit more time-consuming. If you decide to use tape, beware of lifting finish along the frets on a finished maple board or at the edges of any fingerboard.
Fretboard guards are useful. They're really thin metal strips with a cut-out for the fret. They're handy if you plan to do this job regularly (and you should).
Stew Mac have some—they come in a set of six so you can split the cost with three friends. Why three? Because you should cut the long sides of one guard so it fits between the higher frets on your guitar and keep another for the lower frets. Alternatively, search eBay for 'fretboard guards' or 'fingerboard protectors' and you should find sets with one narrow and one full-size guard.
How to actually polish the frets
It's not rocket science. Pop your fret guard down, fold your polishing sheet to provide a little cushioning (which will help it conform to the fret contour), and rub. Start with the lower grit number and repeat with higher grade.
Easy like pie.
Now string up and bend strings like a crazy person.