The reason that viewing distance and the nature of the printing process matters is that, the entire process itself must be taken into account when you are examining whether something is "sharp". This includes the camera lens, film flatness, the resolution, contrast and acutance capacities of the film (and development) itself, and the qualities of the enlargement equipment. In the case of smaller formats like 35mm, there is a much greater chance of running up against a limiting factor like film grain.

If your viewing distance is limited to a distance that doesn't reveal grain on an enlargement from 35mm, you may be too far away to detect a lack of sharpness that would otherwise reveal itself.