The next step was skim-coating.  Skim-coating fills in all of the small irregularities, nicks, scratches, cracks, etc., leaving a nice smooth surface.  For this process, we just used the pre-mixed drywall compound.  To skim-coat, use a wide drywall knife (the wider, the better) and apply a thin coat of the drywall compound to the entire wall.  Once it is dry, use a drywall sander to smooth it all down.

South and west walls with the first skim coat completed.

A good example shot of the amount of dust that’s created when sanding the skim coat.

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