Sanding sealer will work fine, though the method I prefer is to thin PVA glue in water and brush or spray it on. Dope will also work just fine for this, but it has a wicked smell and respiratory PPE must be worn if you don't want to sacrifice braincells. There's this stuff called Eze-Dope which is usually used on tissue models which if you thin it in water will also work, without all the noxious effects, though it's a little on the expensive side. Whatever method you choose, do many light coats, and sand between coats. Beware of just how much you put on the airframe - weight stacks quickly!
As for paint you have a lot of choices since you don't have fuel to protect against. Rattle cans will work just fine, though if you want custom colors you can use latex. Name of the game is again, many light coats.
Covering on sheet balsa does strengthen it a bit. It adds torsional stiffness, but an all-sheet box fuselage has enough strength by itself when the grains are oriented correctly that this is not entirely needed. It makes the balsa a lot more resistant to scratches and dings though. Since this aircraft is a belly lander, the bottom will probably end up with quite a lot of these over time.
A very lightweight method that provides this protection is to seal and paint the fuselage and then cover it with 1.7 mil Doculam. It weighs basically nothing and is clear so whatever paint job you put on the fuselage will be perfectly visible. It also gives your airplane a nice shine
