It took me a long while to warm up to Maven. Unlike Ant, where you can see exactly what gets done when you build, Maven operates by magic. You have to pretty much put stuff exactly where it wants to find it, then you have to know what goals to build.
However, I've got projects that pull 20+ libraries from half a dozen sources. Maven is wonderful for this kind of thing. Instead of downloading and replicating the same JAR files in multiple projects, I can just refer to them in the POM and Maven will take care of the rest. Plus, adding new build options is less work.
To answer you questions. Nothing is "necessary", but if your 2 projects are both Maven projects, then you can get substantial benefits.
As far as automatic updating goes, in general, no. Maven is based on the concept that a project in production is not a continuously-mutating thing, it's a series of fixed releases. You normally would refer to one of those fixed releases (for example, release 1.0.2 of Project1 in the Project2 file). So to get Project2 to use a newer version of Project1, you'd need to do a deployment build of Project1 as a fixed release to your Maven repository. then update Project2's POM to use it.
That may seem a little inflexible, but it has the advantage that you know exactly what version of Project1 you're working with at all times. For large complex systems - especially those using components from all over the world (such as Apache, CodeHaus,
JBoss and so forth) - keeping the outside changes to a minimum will ensure that your project will be more stable and make it easier to locate and repair bugs.
Maven isn't intended primarily to ensure that you work with the "latest and greatest" versions of everything, it's intended to help you work with predictable, stable stuff. I myself got burned badly enough in my Microsoft years to appreciate that - sometimes later and greater can break stuff. Nor is that just a Microsoft problem. One of the worst cases involved a large and expensive mainframe package where we had to roll back releases after only a week in production and wait for an even later and greater release while running the older version in the mean time. But Microsoft does that so well and so often I just couldn't resist picking on them.