Steam is a gaming platform operated by Valve (the guys who make the Half Life and Portal games, as well as DOTA 2). Originally it was a platform for selling and easily keeping their own games up to date, but soon they started selling other company's games too, and eventually it became a massive market leader in digital game sales (the actual client itself is free).
You certainly don't NEED Steam (although it is useful for automatically patching games), but a lot of people use it because most of the games they buy are via Steam, so it's easy to have them all in one place and always up to date. You can get it from
www.steampowered.com/ if you're interested.