First things first: what is Bokeh? Well, it's a Japanese word and, when used in photography, it's the aesthetic quality of the blur produced in the out-of-focus parts of an image produced by a lens. Or, to put it another way, its the yellow balls in the background of the following image.
How is it made? It's actually very simple. First, find a backdrop for the image with lots of points of light, e.g. Christmas lights or dappled light coming through trees. Second, find a subject that stands in front of, and is seperated from, the backdrop. Thrid and final, choose the widest aperture of your chosen lens, focus as close as possible on your subject and fire the shutter! For example, in the above image, the subject and background were about ~0.5m apart and was taken using a wide open Nikon 85mm f/2 lens at its minimum focal distance of ~0.8m. It should also be noted that different lenses have different Bokeh effects: some, like the famed Helios 44, have a very obvious, bubbly look, whereas some have almost none at all.
Finally, do we need Bokeh? Well, it's a highly personal, subjective and often contentious element of modern photography. I'm not a fan of Bokeh for Bokeh's sake (and I thoroughly detest pure Bokeh images, i.e. no actual subject!) and it's easy for Bokeh to be very busy and too distracting. However, used occasionaly and judiciously, Bokeh can actually serve to highlight the subject (rather detract from it) and can add sparkle and pop to an image.