No, da-compounds are not necessary...but in many cases they can help shorten a sentence and save a student from certain gender and case decisions. For example:
Ich schreibe mit dem Bleistift.
Ich schreibe mit der Kreide.
As one is masculine and the other feminine it requires knowing those articles in the dative case. However, if the writing instrument is clearly understood, a da-compound makes it much easier:
Ich schreibe damit.
