Mumbley: I think it's a better idea to use varnish than silicon caulk.
Chemically, a true "varnish" is just a boiled linseed oil based paint without any pigments in it to give it colour and opacity. Ditto for polyurethane, which is just an alkyd paint (with the alkyd resins on steroids) without any pigments in it to give it colour and opacity. So, since silicon caulk sticks well to oil based paints, it will also stick to either real varnish or polyurethane "varnish". (post again if there's anything you don't understand in this explanation)
I agree with sealing the cut edge of any particle board counter top you install. That's one thing that the pros installing a countertop WON'T do, even though they really should. Personally, I use paint, but you really should seal the exposed particle board with something, be it varnish or silicon caulk. I expect oil based paint or varnish would adhere better to the particle board than silicon caulk would, but I don't know for sure.
When I install prefab particle board counter tops in my building, I have to cut holes in them for both the sink and the taps.
I paint the cut edge of the counter top sink cutout with an interior HIGH GLOSS oil based paint (for zero permeability to H2O). I also paint the exposed particle board of the holes cut for the taps with that same paint. I also paint the underside of the counter top around those holes and around the sink cutout with the same paint just for good measure. And, I even paint the back side of the front bullnose of the counter top just so that any water dripping off the front of the countertop doesn't get wicked into the exposed particle board a fraction of an inch above it. Yes, I'm fanatical about keeping water out of my particle board.
I use plumber's putty (rather than silicon) to both seal the lip of the sink to the top of the counter and also pack the inside of the tap body with plumber's putty too. I use sufficient putty that it comes squeezing out under the tap cover as I tighten the taps down. It also squeezes out from under the lip of the sink. That way I'm sure that it's also squeezed into the holes in the countertop drilled to install the taps, and part way into the sink cutout hole too.
(That way, if I remove the tap spout to replace a leaking O-ring, the water that's in the spout won't spill into the empty faucet body, and from there drain down and sit on top of the back nuts where it'll have plenty of time to wick into the exposed particle board and turn it into soft mush. Which, when you come to think of it, is EXACTLY what will happen on a professionally installed countertop if these measures haven't been taken.)
I prefer using plumber's putty to set the sink lip only because it's stiff enough to allow me to center the sink in the cutout hole as I tighten the sink down. If I dropped the sink onto silicon caulk, then I'd be reluctant to slide that sink one way or the other to center it over the cut out hole for fear of screwing up the lip seal. (post again if you want to know how to know when the sink is centered over the cut out hole)
I don't use plumber's putty to set the strainer basket in the sink, tho. Instead, I use TWO 3 inch rubber washers (instead of one); with one above and one below the sink drain hole. I've found that if I don't tighten a strainer basket set in plumber's putty down hard enough, then hard plungering of that sink afterwards can pull the strainer basket loose and cause a water leak around the strainer basket flange. With the two rubber seals on both sides of the sink drain hole, there might be an issue with the rubber rotting in 10 or 15 years, but you can plunger that sink like a rabid gorilla and not have a resulting water leak around the strainer basket.
hope this helps.
