To start, any time you weld, you will have some shrinking occur. Basically with the introduction of heat from the welding process, the molecules in the metal expands from the heat. Then, as it cools, the molecular structure will re-align such that they are tighter together than they were previously, or in other words, shrinking has occurred. So yes, a hammer and dolly works wonders to stretch out the area that has shrunk. About the only time you will see any stretching is from a dent during body damage. Welding causes heat that shrinks. Fix the deformity that results by stretching the weld and Heat Affected Zone (HAZ), recognized by the blue discoloration around the weld.
There are a couple different ways to planish the welds:
1- planish out the weld dots as you go, and then grind them down to insure they are out of the way for planishing the next set. If you don't do this step, you may end up with some weld dots taller than others, and as you hammer and dolly, these varying height welds will tend to deflect the panel, possibly causing waves/more distortion.
2- Weld the complete joint and planish afterwards. Following the same philosophy of the varying height weld dots as before, it would be best to grind down the weld to just above the panel surface (both sides) for a consistant, flat weld surface, and then planish. For someone not as adept in grinding consistently, the first version may work best. Someone who can grind to a consistent height could use either, personal preference.
Here are a couple of reads on the topic, some showing the difference between shrinking and stretching, that may help to explain a little better (with pictures!!)
http://www.trifive.com/forums/showthread.php?t=46382 http://www.trifive.com/forums/showthread.php?t=65849
