similar to jailbreaking it allows the user to do much more, especially with a VM phone. For example VM has BlueTooth, but all you can use it for is handsfree calling, if you were to root your phone with one of the many ROMs you can do much more, like connect to a bluetooth keyboard.
The term for this is Rooting, which goes back to the base of the Android OS which is Unix. When you root your phone you are giving your self full admin privileges which in Unix speak you would be known as the Root User. You have the controls to do many things, change your status bar appearance, even over clock the processor of your phone but when you do process enhancements like that you are running into risks
It is only necessary if you want it. Right now the MT comes with Android 2.2 and VM is soon releasing 2.3. With ROMs that available you can already have a modded version of 2.3, and even 4.0 minus a few features since it is still in its alpha testing dev stage.
it took me 4 months until i finally decided to root my phone and I like the difference. I have noticed improved data speeds, extended battery life.. and there were a couple more things that I can't recall at the moment.
Hope that helps