Yes, live rock is absolutely necessary. The "live" part refers to the bacterium that reside within the porous structure if the rock. All rock will, over time, become "live" but it is beneficial to kickstart the process by adding a few chunks of purchased live rock. I've always started with 97-99% dry rock (think Marco rocks) and "seeded" with a chunk or two of live. A good rule of thumb is anywhere from 1-2 lbs of rock per gallon of water.
The live rock is often covered with coralline algae and other microscopic organisms that function as a biological filter and serve to diversify the saltwater aquarium environment. And I think it's essential because it provides biofilters that are so important for the health of saltwater fish.