A steel won't actually 'sharpen' the blade as such. A kitchen knife is ground to a micro-fine edge as you need to use it for relatively soft cutting. The action of cutting and pressing the knife into the chopping board folds over this edge (talking mircoscopic here). Running the knife over the steel is actually straightening this sliver again thus restoring it's edge.
The process of 'sharpening' a knife involves grinding, albeit again on a microscopic level, to create a fresh bevel. If you were to use wet/dry paper over plate-glass you would be looking at 1000grits and finer, then stropped over leather using something similar to autosol as a paste.
Often a knife will 'feel' sharp because running it over one's finger you can feel the mirco serrations from sharpening over too rough a grit. In some circumstances this can be beneficial, as a serated knife cut certain food stuff's better. A finely stropped edge will cut like a razor but won't always feel as sharp to the touch.
To tell if my woodworking chisels are actually sharp I will shave the hairs off the back of my hand.
Provided you take care of your knives, a steel will be fine for most of the time. Once the cutting edge becomes damaged, it will need regrinding.