It is what holds/seals the bellows to the bellhousing so yes it is quite necessary. Merc makes a tool to install it , and most folks use merc power tune sprayed on it to make it slick as 'ell.
I used a storm water grate piece (fits in a female pipe fitting) pushing it with a 5 lb mallet (BFH) to seat mine... took some cursing, some power tune, some beer and a second set of hands to hold the bellhousing at the right angle to keep the bellows lip in the groove...