Stone dust is finely crushed rock and is available through builders merchants in the UK. It can be used as the surface for paths, or as a bedding for slabs as Lindyloo is doing.
It will be solid enough for the slabs by itself, but as you say, should be compacted down before laying them. One way I've found of doing this with sand is to flood the sand with water from a sprinkler hose as it's put down. This compacts all the particles. Build up the stone dust a little higher than you need, then ''shave'' it down using a suitable plank of wood to get it the right height and level.